After spending $3 million on research, Super Mousetraps has developed a new trap. The project requires an initial investment in plant and equipment of $6 million. This investment will be depreciated straight-line over five years to a value of zero, but when the project terminates in five years, the equipment can in fact be sold for $500,000. The firm believes that working capital at each date must be maintained at 10% of next years forecasted sales. Production costs are estimated at $1.50 per trap and the traps will be sold for $4 each. There are no other marketing expenses. Sales forecasts (in million units) are given in the following table.

Sales Forecasts

Year 0 1 2 3 4 5

Sales 0 0.5 0.6 1.0 1.0 0.6

The firm pays tax at 35% rate and the required return on the project is 12%. What is the projects NPV? Suppose that the price of each trap rises at an annual rate of 2%, and production costs per unit rises by 10% each year. Should the project be accepted?