Better Mousetraps has developed a new trap. It can go into production for an initial investment in equipment of $6.3 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 $549,000. The firm believes that working capital at each date must be maintained at a level of 10% of next years forecast sales. The firm estimates production costs equal to $1.60 per trap and believes that the traps can be sold for $6 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 firms tax bracket is 35%, and the required rate of return on the project is 10%. Use the MACRS depreciation schedule.

Year:	0	1	2	3	4	5	6	Thereafter
Sales (millions of traps)	0	0.6	0.8	1.0	1.0	0.5	0.3	0

a. What is project NPV? (Do not round intermediate calculations. Enter your answer in millions rounded to 4 decimal places.)

NPV

$

million

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 :