The following costs are given for a seven year lease...

Description	Unit	Price Per Unit	Year 0	Year 1	Year 2	Year 3	Year 4	Year 5	Total Cost
Lease Expense		$10,000	$10,000		10,000	10,000	10,000	10,000	$50,000
Sales Annual Service Agreement Fee	1	$2000	$2000		2000	2000	2000	2000	$10,000
Initial Training	1	$2000							$2000
Maintenance Fee				$1000	1000	1000	1000	1000	$5000
In-kind Maintenance Fee for Speciallized Maintenance				$1000	1000	1000	1000	1000	$5000
Replacement Equipment						$200	200	200	$600
Total Costs			$12,000	$2000	$14,000	$14,200	$14,200	$14,200	$72,600

Straight Line Depreciation yearly depreciation = $7134.29 ($50K initial cost, $60 salvage value of replacement equipment, 5 year lease). $10,000 in income expected to be gained in years 1 - 5 for a total of $50,000. Tax rate is 20% of net income. Cost of capital is 10%.

Question...

This is for an Operating Lease agreement.

A) Can you please demonstrate how you would calculate the cash flows? Also, Total Cash Out (Future Value) and how to calculate Total Cash Out Present Value for each year of the lease?

Would you need to subtract a depreciation expense for each year and then add it back for cash flows?

Also, how you would calculate the Net Present Value (do you need to use an external table?), Discount Rate or Hurdle Rate and Internal Rate of Return?

Formulas with an explanation would be greatly appreciated.

Thank you. I am more interested in learning the WHY and HOW than anything else. Thanks!!!