St. James Cleaners is considering investing in a new machine. The machine costs $20,000 and has an economic life of five years. The machine will generate cash flows of $5,000 (cash revenues less cash expenses) each year. All cash flows, except for the initial investment, are realized at the end of the year. The investment in the machine will be made at the beginning of the project. St. James Cleaners is not subject to any taxes and, for financial accounting purposes, will depreciate the machine using straight-line depreciation over five years. The company uses a 16 percent cost of capital when evaluating investments. 

Required

a. Suppose St. James Cleaners acquires the machine. By how much will annual accounting income increase or decrease in each of the five years? Is the sum over the five years positive?

b. Does the machine acquisition have a positive net present value?

c. Comment on the results in requirements (a) and (b).