Better Mousetraps has developed a new trap. It can go into production for an initial investment in equipment of $5.7 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 $671,000. 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 $1.80 per trap and believes that the traps can be sold for $8 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 11%. Use the MACRS depreciation schedule.

Year:

0

1

2

3

4

5

6

Thereafter

Sales (millions of traps)

0

.4

.5

.7

.7

.5

.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 by $ .