Question: Find NPV, IRR, Profitability Index, and Payback in Years

18. Project Evaluation. Better Mousetraps has developed a new trap. It can go into production or 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 5 years when the trap becomes technologically obsolete. The firm's tax bracket is 35%, and the required rate of return on the project is 12%. (LO9-2 and LO9-3) Year: 0 1 2 3 4 5 6 Thereafter 0 Sales (millions of traps) 0 0.5 0.6 1.0 1.0 0.6 0.2 a. What is project NPV? b. By how much would NPV increase if the firm depreciated its investment using the 5-year MACRS schedule? I n nrsal to manufacture high-protein hog