Bee LLC is considering purchasing equipment to boost its business. Given the information below, conduct the required capital budgeting analysis to offer your recommendation. Use five of the following seven methods. Please detail any assumptions made and show your calculations for your recommendation.

• Net Present Value
• Internal Rate of Return
• Modified Internal Rate of Return
• Profitability Index
• Payback Period
• Discounted Payback Period
• Average Accounting Return

Finally, calculate DeltaNPV/DeltaPrice.

Case

To purchase the equipment, Bee LLC incurs the following costs:

Equipment purchase price$35,700,000

Equipment useful life5 years, Straight Line Depreciation Rate 20% per year

Equipment Salvage value$4,670,000

Required R&D$1,200,000, to choose the right equipment

Marketing study$450,000, to ascertain market potential

Bee LLC intends to produce a unique gadget with the following cost structure:

Unit Price$525

Unit Variable Cost$310

Fixed Cost6,200,000

Tax Rate30%

Estimate of the Annual Net Working Capital of Sales25%

Required Return15%

The company's projections for sales are shown below:

Projected SalesYear +1Year +2Year +3Year +4Year +5

Sales(units)75,00098,000115,000105,00065,000