Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please show any excel functions used!! Better Mousetrap Inc. Better Mousetraps has developed a new trap. It can go into production for an initial investment

Please show any excel functions used!!

image text in transcribed

Better Mousetrap Inc. 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 depreciated straight-line over 6 years to a value of zero, but, in fact, it can be sold after 6 years for $500,000. The firm believes that working capital at each date must be maintained at a level of 10% of next year's 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 6 years, and project assets will be liquidated at $500,000 as indicated above. The firm's tax bracket is 35%, and the required rate of return on the project is 12%. Projected Sales: Year 1 2 3 Sales Units 500,000 600,000 1,000,000 1,000,000 600,000 200,000 4 5 6 a. What is project NPV? b. By how much would NPV increase if the firm depreciated its investment using the 5-year MACRS schedule MACRS Depreciation 1 20% 2 32% 3 19% 4 12% 5 12% 6 6%

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Literacy For Managers

Authors: Richard A. Lambert

1st Edition

1613630182, 978-1613630181

More Books

Students also viewed these Finance questions