Exercise #7: Better Rattraps has developed a new trap. It can go into production for an initial investment in equipment of $6 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 $650,000. The project requires an increase of working capital of $400,000. The working capital will be recaptured at the end of the project. The firm estimates production costs equal to $1.60 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 6 years, when the trap becomes technologically obsolete. The firms tax bracket is 35%, and the required rate of return on the project is 12%.

Sales (millions of traps) (Yr 0= 0) (Yr 1=0.6) (Yr 2=0.7) (Yr 3=1.3)

(Yr 4=1.3) (Yr 5=0.7)(Yr 6=.3) (Thereafter= 0)

What is project NPV?

Fill in the Table in $$:

Year	0	1	2	3	4	5	6
Revenues
Expense
Depreciation
Pretax profit
Tax
After-tax profit
Oper Cash Flow excl WC
Capital investment
Cash flow from WC
Cash flow from salvage
Total cash flow
PV of cash flow at 12%
Net present value