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 $5.7 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$671,000. 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 $1.80 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 8%. Use the MACRS depreciation schedule. Year: 0 1 2 3 45 6 Thereafter Sales (millions of traps) 0 0.4 0.6 0.7 0.7 0.5 0.30 a. What is project NPV? (Negative amount should be indicated by aminus sign. Do not round intermediate calculations. Enter youranswer in millions rounded to 4 decimal places.) b. By how muchwould NPV increase if the firm depreciated its investment using the5-year MACRS schedule? (Do not round intermediate calculations.Enter your answer in whole dollars not in millions

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a 0 1 2 3 4 5 6 Sales in units 400000 600000 700000 700000 500000 300000 Sales revenue 7Unit 2800000 4200000 4900000 4900000 3500000 2100000 Cost of production 180Unit 720000 1080000 1260000 1260000 900000 540000 Depreciation Straight line 950000 950000 950000 950000 950000 950000 NOI 1130000 2170000 2690000 2690000 1650000 610000 Tax at 35 See Answer

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Better Mousetraps has developed a new trap. It can go intoproduction for an initial investment in equipment of $5.7 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$671,000. 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 $1.80 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 8%. Use the MACRS depreciation schedule. Year: 0 1 2 3 45 6 Thereafter Sales (millions of traps) 0 0.4 0.6 0.7 0.7 0.5 0.30 a. What is project NPV? (Negative amount should be indicated by aminus sign. Do not round intermediate calculations. Enter youranswer in millions rounded to 4 decimal places.) b. By how muchwould NPV increase if the firm depreciated its investment using the5-year MACRS schedule? (Do not round intermediate calculations.Enter your answer in whole dollars not in millions