By how much will this increase project npv

Assignment Help Finance Basics

Reference no: EM133665213

Problem

Better Mousetraps has developed a new trap. It can go into production for an initial investment in equipment of $6.0 million. The equipment will be depreciated straight-line over 6 years, but, in fact, it can be sold after 6 years for $530,000. The firm believes that working capital at each date must be maintained at a level of 15% of next year's forecast sales. The firm estimates production costs equal to $1.90 per trap and believes that the traps can be sold for $6 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 firm's tax bracket is 40%, and the required rate of return on the project is 9%.

Year:	0	1	2	3	4	5	6	Thereafter
Sales (millions of traps)	0	0.4	0.5	0.6	0.6	0.8	0.4	0

Suppose the firm can cut its requirements for working capital in half by using better inventory control systems. By how much will this increase project NPV?

Reference no: EM133665213

Questions Cloud

Calculate the lease payments net of tax then pvif and npv : Calculate the Lease payments net of tax, then PVIF and NPV. Explain the concept of discounted cash flow techniques for project evaluation.

Calculate the earnings per share if a company issue stock : Calculate the Earnings per share if a company issue additional stock to raise capital for major expansions for the company in the next five years.

How much can you withdraw each month in retirement : How much can you withdraw each month in retirement from your account assuming a 20-year withdrawal period?

Calculate how much joseph should be willing to pay : Joseph is planning for his retirement this year. Calculate how much Joseph should be willing to pay for the annuity if he can invest his funds at 9%.

By how much will this increase project npv : Suppose the firm can cut its requirements for working capital in half by using better inventory control systems. By how much will this increase project NPV?

Why is he important in western civilization : Why is he important in Western Civilization? In this passage, from what point of view does he tell the story?

How much you have to save each year to make retirement plan : On that birthday you want to give $1,000,000 to your children. How much do you have to save each year to make this retirement plan happen?

Define musical theatre : Introduction paragraph incorporating: What are the external factors (social, historical, economic, political) that help to define Musical Theatre?

What types of projects require the least detailed : What types of projects require the least detailed and the most detailed analyses in the capital budgeting process?

User Account

All Pages