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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 will be
Better Mousetraps has developed a new trap. It can go Into production for an InItial Investment In equipment of $6 million. The equipment will be depreclated straight-IIne over 6 years, but, In fact, It can be sold after 6 years for $500,000. The firm belleves that workIng capital at each date must be maintalned at a level of 10% of next year's forecast sales. The firm estimates production costs equal to $1.50 per trap and belleves that the traps can be sold for $4 each. Sales forecasts are glven In the following table. The project will come to an end in 5 years when the trap becomes technologically obsolete. The firm's tax bracket is 40%, and the required rate of return on the project is 12%. Use the MACRS depreclation schedule. a. What is project NPV? Note: Negatlve amount should be Indlcated by a minus sign. Do not round Intermedlate calculatlons. Enter your answer In millilons rounded to 4 decimal places. b. By how much would NPV Increase if the firm uses double-declining-balance depreclation with a later switch to straight-IIne when remaining project life is only two years? Note: Do not round Intermedlate calculations. Enter your answer In millions to the nearest whole dollar amount
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