Elkins Co. is considering an investment in equipment for a new product line with a cost of $48,625, a terminal value of $6,283, and a useful life of 5 years. The project will provide an annual contribution margin of $12,500. The required rate of return is 12%. Ignore income taxes. This project is:
A) Unacceptable, because it earns a rate below 12%.
B) Acceptable, because it has a positive NPV.
C) Unacceptable, because it has a 0 NPV.
D) Acceptable, because it earns exactly 12%.

Question

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The Answer of Elkins Co. is considering an investment in equipment for a new product line with a cost of $48,625, a terminal value of $6,283, and a useful life of 5 years. The project will provide an annual contribution margin of $12,500. The required rate of return is 12%. Ignore income taxes. This project is:
A) Unacceptable, because it earns a rate below 12%.
B) Acceptable, because it has a positive NPV.
C) Unacceptable, because it has a 0 NPV.
D) Acceptable, because it earns exactly 12%.

Elkins Co Is Considering an Investment in Equipment for a New