I need an to check my answer with 4 decimal places:
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$682,000. 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 $1.30 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 8%.
a. What is project NPV? (Negativeamount should be indicated by a minus sign. Do not roundintermediate calculations. Enter your answer in millions rounded to4 decimal places.)
b. By how much would NPV increase if the firmdepreciated its investment using the 5-year MACRS schedule?(Do not round intermediate calculations. Enter your answerin whole dollars not in millions.)
Use the MACRS depreciation schedule.
Year: | 0 | 1 | 2 | 3 | 4 | 5 | 6 | Thereafter |
Sales (millions oftraps) | 0 | 0.5 | 0.7 | 0.8 | 0.8 | 0.7 | 0.5 | 0 |