Question 7 (14 marks) Better Mousetraps has developed a new trap. It can go into production for an initial investment in equipment of $6 million. This equipment falls into class 8 (CCA rate = 20 percent) for CCA purposes, and it can be sold after 5 years for $500,000. The firm believes that working capital at each date must be maintained at a level of 10 percent 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. The number of traps that the firm expects to sell is given in the following table. The project will come to an end in 5 years, when the trap becomes technologically obsolete. The firm's tax bracket is 35 percent, and the required rate of return on the project is 12 percent. Based on these preliminary project estimates, what is the NPV of the project? Should the project be accepted? Year: 1 2 3 4 15 Traps (millions of traps): 0.5 0.6 1.0 1.0 0.6 1 (PV tax shield on CCA [CdT), [1+0.5k] SHT d+k 1+k d+k" (1+k)" x x