Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. better mousetraps has developed a new trap. it can

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

70.2K

Verified Solution

Question

Finance

image
Better Mousetraps has developed a new trap. It can go into production for an initial investment in equipment of $63 million. The equipment will be depreciated straight line over 6 years to a value of zero, but in fact it can be sold after 6 years for $672,000. The firm believes that working capital at each date must be maintained at a level of 10% of next year's forecast sales The firm estimates production costs equal to $170 per trap and believes that the traps can be sold for $7 each Sales forecasts are given in the following table. The project will come to an end in 6 years, when the trap becomes technologically obsolete. The firm's tax bracket is 95%, and the required rate of return on the project is 9%. Use the MACRS detection schedule Years Thereafter Sales (llions of trops) 0.5 0.7 0.6 0.7 0.5 a. What is project NPV? (Do not round intermediate calculations. Enter your answer in millions rounded to 4 decimal places.) b. By how much would NPV increase if the firm depreciated its investment using the 5-year MACRS schedule? (Do not round intermediate calculations. Enter your answer in whole dollars not in millions.) The NPV increases by

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students