$1$

points

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Better Mousetraps has developed a new trap. It can go into production for an initial investment in equipment of $$6\mathrm{.}3$ million. The equipment will be depreciated straight line over $6$ years to a value of zero, but in fact it can be sold after $6$ years for $$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\mathrm{.}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 $11\%$

Year: $0123456$ Thereafter

Sales $($millions of traps$)00\mathrm{.}60\mathrm{.}80\mathrm{.}90\mathrm{.}50\mathrm{.}20$

What is project NPV$?$

By how much would NPV increase if the firm depreciated its investment using the $5-$year MACRS schedule?