$15$

Better Mousetraps has developed a new trap. It can go into production for an initial investment in equipment of $$5\mathrm{.}4$ million. The equipment will be depreciated straight$-$line over $6$ years, but, in fact, it can be sold after $6$ years for $$606,000.$ 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

$1$

equal to $$1\mathrm{.}70$ per trap and believes that the traps can be sold for $$7$ each. Sales forecasts are given in the following table. The project points will come to an end in $6$ years, when the trap becomes technologically obsolete. The firm's tax bracket is $40\%,$ and the required rate of return on the project is $12\%.$

$\backslash$table$[[$Year:$,0,1,2,3,4,5,6,$Thereafter$],[$Sales $($millions of traps$),0,0\mathrm{.}5,0\mathrm{.}7,0\mathrm{.}9,0\mathrm{.}9,0\mathrm{.}6,0\mathrm{.}3,0]]$

Suppose the firm can cut its requirements for working capital in half by using better inventory control systems. By how much will this increase project NPV$?$

Note: Do not round your intermediate calculations. Enter your answer in millions rounded to $4$ decimal places.

Increase in NPV

million