Better Mousetraps has developed a new trap. It can go into production for an initial investment in equipment of $5.4 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 $668,000. The firm believes that working capital at each date must be maintained at a level of 15% 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 9%. Use the MACRS depreciation schedule.

Year: Sales (millions of traps)

Year 0 ---------------------0

Year 1----------------------0.6

Year 2----------------------0.8

Year 3----------------------1.0

Year 4----------------------1.0

Year 5----------------------0.9

Year 6----------------------0.6

Thereafter-----------------0

a. What is project NPV? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in millions rounded to 4 decimal places.)

NPV-----------$

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 $