Lorenzo Company Is Considering the Purchase of Equipment with an Eight

Lorenzo Company is considering the purchase of equipment with an eight year life that requires a $1,600,000 investment.At the end of eight years,the equipment will have no salvage value.For eight years,the equipment will provide net income at the end of each year as follows:
$\begin{array}{ll}\text { Sales } & \$ 3,000,000 \\\text { Less: Variable Expenses } & 1,800,000 \\\text { Contribution margin } & 1,200,000\end{array}$
Less: Fixed Expenses:
$\begin{array}{ll}\text { Advertising } & 700,000 \\\text { Depreciation on equipment } & {200,000} \\\text { Net income } &{\$ 300,000}\end{array}$
Other information follows:
$\begin{array} { l } \text {Required rate of return }&18\% \\ \text {Tax rate }&30\% \\ \text {Depreciation method for tax purposes }&\text { Straight-line } \\\end{array}$

Present value of ordinary annuity of one
$\begin{array} { l } \text {at \( 18 \% \) for 8 periods }&4.0776 \\ \text {Present value of one at \( 18 \% \) for 8 periods }&0.266 \\\end{array}$

Required:
1.Compute the after tax annual cash flows generated by the equipment.
2.Compute the equipment's net present value.
3.If the salvage value of the equipment is $10,000,compute the equipment's net present value.