(Comprehensive) Star-O-Rama operates a video arcade in the Hamilton Mall. The owner of Star-O-Rama, Jennifer Shaw, is considering acquiring a new “center- piece” video machine. The cost of the new equipment would be $120,000. The equipment would have an expected life of 4 years and no salvage value. Straight- line depreciation would be used for both financial and tax purposes.

Ms. Shaw expects the new machine to generate an additional $50,000 per year in net, pretax cash flows. The cost of capital and tax rate for Ms. Shaw are 10 percent and 28 percent, respectively.

a. Determine the after-tax cash flows from the new machine.

b. Determine the net present value of the machine.

c. Determine the accounting income of the machine.

d. Determine the accounting rate of return and the payback period on an after¬ tax basis.