What is project npv-better mousetraps

Reference no: EM132466279

Better Mousetraps has developed a new trap. It can go into production for an initial investment in equipment of $6.3 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 $695,000. 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 $1.80 per trap and believes that the traps can be sold for $7 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 35%, and the required rate of return on the project is 11%. Use the MACRS depreciation schedule.

Year: 0 1 2 3 4 5 6

Sales in millions of traps: 00 .60 .80 .90 .90 .50 .20

a. What is project NPV? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in millions rounded to 4 decimal places.)

Reference no: EM132466279

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