1.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%.

2.A firm is currently buying a part at a cost of $12 each. It is considering buying a machine that will produce the part at a variable cost of $8. Each unit of input produces the part plus a by-product, which is sold for $1. The machine will cost $40,000 and will have a useful life of 5 years. The firm requires an 8% return. What annual volume is necessary to justify making the investment? Ignore income taxes.

a	2,558 units

b	3,198 units

c	12,792 units

d	8,000 units

3.The payback period is deficient as a decision criterion for capital projects because it: I. Disregards relative profitability II. Ignores income beyond the payback period III. Does not take into account the time value of money

a

I only

b

II only

c

III only

d	I, II, and III