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 life 5 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 Cost 6,200,000

Tax Rate 30%

Estimate of the Annual Net Working Capital of Sales 25%

Required Return 15%

The companys projections for sales are shown below:

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

Sales(units) 75,000 98,000 115,000 105,000 65,000