The required rate of return on project

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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 according to 5-year MACRS over 6 years to a value of zero, but in fact it can be sold after 6 years for $620,000. The firm allocates $250,000 working capital to the project to be recovered at the end. The firm estimates production costs equal to $1.60 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., when the trap becomes technologically obsolete. The firm’s tax bracket is 40%, and the required rate of return on the project is 12%.

What is the project NPV, and what would be the MACRS rate for each year

Reference no: EM131886384

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