Honeywell Electronics Capital Budgeting Gotcha Electronics has developed a new electronic device which, when mounted on an automobile will tell the driver how many police cars there are within a 15 mile radius of the automobile's current location, the direction the car is heading, as well as the mood (good, bad, happy, sad) of the police officer driving the car. The electronic device also gives fashion advice for various social and professional functions. The company is anxious to begin production of the new device. To this end, marketing and cost studies have been made to determine probable costs and market potential. These studies have provided the following information: a. New equipment would have to be acquired to produce the device. The equipment would cost $400,000 and have a 15-year useful life. After 15 years, it would have a salvage value of about $18,000. b. Sales in units over the next 15 years are projected to be as follows: Year 1 7,000 units Year 2 12,000 units Year 3 14,000 units Years 4-11 16,000 units Years 12-15 19,000 units c. The devices would initially sell for $35 each. It is expected that the sales price per device will be increased at a rate of 8% per year. d. Variable costs for production, administration, and sales would start at $15 per unit. It is expected that these costs will increase by 12% per year in years 2 through 5, then 3% per year for years 6 through 15. e. Fixed costs for salaries, maintenance, property taxes, insurance, are expected to initally be $115,000 per year. These costs are expected to increase at a rate of 4% per year. d. Depreciation on the new machinery will be $25,000 per year. e. To gain rapid entry into the market, the company will have to advertise heavily. The advertising program is expected to be: Year 1 - 2 $180,000 per year Year 2 - 6 $150,000 per year Year 7-9 $140,000 per year Year 10-15 $160,000 per year f. Gotcha's president is currently serving 3 - 5 on a parole violation, and as such refuses to accept projects unless they provide an annual rate of return of 14% or higher. Required: Compute the payback, internal rate of return, and net present value for the electronic device. Show computations.