Problem #3: Capital Budgeting, NPV, & WACC (7 points) After spending $3 million on research, Better Mousetraps has developed a new trap. The project requires an initial investment in plant and equipment of $6 million. This investment will be depreciated straight-line over five years to a value of zero, but, when the project comes to an end in five years, the equipment can in fact be sold for $500,000. The firm believes that working capital at each date must be maintained at 10% of next year's forecasted sales. Production costs are estimated at $1.50 per trap and the traps will be sold for $4 each. (There are no marketing expenses.) Sales forecasts are given in the following table. The firm pays tax at 35% and the required return on the project is unknown. Year 2 3 4 Sales $0 $500,000 $600,000 $1,000,000 $1,000,000 $600,000 0 1 5 Use the information below to calculate the firm WACC. Round to two decimal places, for example 20.00% Equity Mkt Value $60,000,000 Book Value $6,000,000 Shares 1,000,000 Price $60.00 Div $1.50 Beta 2 Mkt Risk Premium 6.2% Risk Free Rate 3% Debt Mkt Value $40,000,000 Book Value $50,000,000 Bonds Outstanding 50,000 Price $87.13 Coupon (semi-annual) 8% Maturity 10 Tax rate 30%