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Better Mousetraps has developed a new trap. It can go into production for an initial investment in equipment of $6 million. The equipment falls in
- Better Mousetraps has developed a new trap. It can go into production for an initial investment in equipment of $6 million. The equipment falls in the 5-year MACRS, it can be sold after 6 years for $500,000. The applicable depreciation rates are 20%, 32%, 19.20%, 11.52%, 11.52% and 5.76%. 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 $1.50 per trap and believes that the traps can be sold for $4 each. Sales forecasts are given in the following table. The project will come to an end in 5 years when the trap becomes technologically obsolete. The firms tax bracket is 35%, and the required rate of return on the project is 12%.
Year 0: 0
Year 1: 0.5
Year 2: 0.6
Year 3: 1.0
Year 4: 1.0
Year 5: 0.6
Year 6: 0.2
Thereafter 0
- What is project NPV?
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