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Better Mousetraps has developed a new trap. it can go into production for an initial investment in equipment of $5.7mili ion. The equipment will be
Better Mousetraps has developed a new trap. it can go into production for an initial investment in equipment of $5.7mili ion. The equipment will be depreciated straight line over 6 years to a value of zero, but in foct it can be sold after 6 years for $638,000. The firm believes that working capital at each date must be maintained at a level of 15% of next year's forecast sales. The firm estimates production costs equal to $170 per trap and believes that the traps can be sold for $8 each. Sales forecasts are given in the following toble. 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 retum on the project is 10%. Use the MACRS depreciation scheduler a. What is project NPY? (Do not round intemediate calculations. Enter your answer in millions rounded to 4 decimat places.) b. By how much would NPV increase if the firm depreciated its investment using the S-year MACRS schedule? (Do not round intermediate calculations. Enter your answer in whole dollars not in millions.) 2. Real property is depreciated straight-line over 27.5 years for residential property and 39 years for nonresidential property
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