Better Mousetraps has developed a new trap. It can go into production for an initial investment...

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Better Mousetraps has developed a new trap. It can go intoproduction for an initial investment in equipment of $6.3 million.The equipment will be depreciated straight line over 6 years to avalue of zero, but in fact it can be sold after 6 years for$530,000. The firm believes that working capital at each date mustbe maintained at a level of 15% of next year’s forecast sales. Thefirm estimates production costs equal to $1.90 per trap andbelieves that the traps can be sold for $7 each. Sales forecastsare given in the following table. The project will come to an endin 6 years., when the trap becomes technologically obsolete. Thefirm’s tax bracket is 35%, and the required rate of return on theproject is 9%. Use the MACRS depreciation schedule.
Year: 0 1 2 3 4 5 6 Thereafter Sales (millions of traps) 0 .4 .5.6 .6 .8 .4 0
a. What is project NPV? (Do not round intermediate calculations.Enter your answer in millions rounded to 4 decimal places.) NPV $million
b. By how much would NPV increase if the firm depreciated itsinvestment using the 5-year MACRS schedule? (Do not roundintermediate calculations. Enter your answer in whole dollars notin millions.) The NPV increases by $ .
Better Mousetraps has developed a new trap. It can go intoproduction for an initial investment in equipment of $5.4 million.The equipment will be depreciated straight line over 6 years to avalue of zero, but in fact it can be sold after 6 years for$527,000. The firm believes that working capital at each date mustbe maintained at a level of 10% of next year’s forecast sales. Thefirm estimates production costs equal to $1.10 per trap andbelieves that the traps can be sold for $5 each. Sales forecastsare given in the following table. The project will come to an endin 6 years., when the trap becomes technologically obsolete. Thefirm’s tax bracket is 35%, and the required rate of return on theproject is 9%.
Year: 0 1 2 3 4 5 6 Thereafter
Thereafter Sales (millions of traps) 0 .5 .7 .9 .9 .6 .4 0
Suppose the firm can cut its requirements for working capital inhalf by using better inventory control systems. By how much willthis increase project NPV? (enter your answer in millions roundedto 4 decimal places.
Change in NPV

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Better Mousetraps has developed a new trap. It can go intoproduction for an initial investment in equipment of $6.3 million.The equipment will be depreciated straight line over 6 years to avalue of zero, but in fact it can be sold after 6 years for$530,000. The firm believes that working capital at each date mustbe maintained at a level of 15% of next year’s forecast sales. Thefirm estimates production costs equal to $1.90 per trap andbelieves that the traps can be sold for $7 each. Sales forecastsare given in the following table. The project will come to an endin 6 years., when the trap becomes technologically obsolete. Thefirm’s tax bracket is 35%, and the required rate of return on theproject is 9%. Use the MACRS depreciation schedule.Year: 0 1 2 3 4 5 6 Thereafter Sales (millions of traps) 0 .4 .5.6 .6 .8 .4 0a. What is project NPV? (Do not round intermediate calculations.Enter your answer in millions rounded to 4 decimal places.) NPV $millionb. By how much would NPV increase if the firm depreciated itsinvestment using the 5-year MACRS schedule? (Do not roundintermediate calculations. Enter your answer in whole dollars notin millions.) The NPV increases by $ .Better Mousetraps has developed a new trap. It can go intoproduction for an initial investment in equipment of $5.4 million.The equipment will be depreciated straight line over 6 years to avalue of zero, but in fact it can be sold after 6 years for$527,000. The firm believes that working capital at each date mustbe maintained at a level of 10% of next year’s forecast sales. Thefirm estimates production costs equal to $1.10 per trap andbelieves that the traps can be sold for $5 each. Sales forecastsare given in the following table. The project will come to an endin 6 years., when the trap becomes technologically obsolete. Thefirm’s tax bracket is 35%, and the required rate of return on theproject is 9%. Year: 0 1 2 3 4 5 6 ThereafterThereafter Sales (millions of traps) 0 .5 .7 .9 .9 .6 .4 0Suppose the firm can cut its requirements for working capital inhalf by using better inventory control systems. By how much willthis increase project NPV? (enter your answer in millions roundedto 4 decimal places.Change in NPV