Mr. Ambitious is considering purchasing a new machine to be used in his dry-cleaning business. The following cash savings are expected from the $40,000 investment over the next 5 years: years 1 and 2, $15,000 per year; years 3, 4, and 5, $10,000 per year.

a. What is the annual depreciation expense?

b. What are the average annual net cash flows?

c. What is the accounting rate of return?

d. If the required rate of return is 8%, should the machine be purchased?