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:

Sales	$3,000,000.00
Less Variable Expense	$1,800,000.00
Contribution Margin	$1,200,000.00
Less: Fixed Expenses:
Advertising	$700,000.00
Depreciation on Equipment	$200,000.00
Net Income	$300.00
Other Information Follows: Required rate of return	18%
Tax rate	30%
Depreciation method for tax purposes	Straight-Line
Present value of ordinary annuity of one at 18% for 8 periods	4.0776
Present value of one at 18% for 8 periods	0.266

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.