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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
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 $694,000. 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 equal to $2 00 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 firm's tax bracket is 35%, and the required rate of return on the project is 10% Use the MACRS depreciation schedule. Year : 1 2 3 4 5 6 Thereafter Sales (millions of traps) 9.4 0.5 9.6 0.6 9.8 0.5 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
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