# Better Mousetraps has developed a new trap. It can go into production for an initial investment...

###### Question:

Better Mousetraps has developed a new trap. It can go into production for an initial investment in equipment of $5.7 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$671,000. 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$8 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.

Sales (millions of traps) 0   1       2       3       4       5     6   Thereafter

0 0.4   0.5    0,7   0,7   0,5   0.3

What is project NPV?

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