Reliable Manufacturing, "Reliable" is considering replacing worn-out equipment for producing one of its product lines: widgets. The worn-out equipment has no remaining value for accounting or tax New equipment can be purchased at a cost of $110,000, has an expected useful life of 10 years and is expected to have a residual value of $10,000 at the end of the tenth year. An additional investment of $5,000 in working capital will be required at the inception but will be recovered at the end of the tenth year. It is estimated that Reliable will be able to produce and sell 60,000 widgets annually at a selling price of $3/ widget. Reliable estimates that manufacturing costs are 30% of the selling price. Other costs associated with the widget operation include monthly rent of $1,000; annual salaries of $24,000 monthly insurance of $500 and depreciation on the new equipment. Reliable's tax rate is assumed to be 30% and the equipment will qualify for a capital cost allowance rate of 20% Reliable's after tax required rate of return is 8%. Required: 1.. Compute the after tax undiscounted expected annual cash flow. 2. Compute the expected payback period on an after tax basis. 3. Compute the adjusted accounting rate of return on the project. 4. Comment on whether Reliable should purchase the equipment and on any additional work you would do before making this decision