Busi 530 Ch 9_9.pdf - Assignment Print View Page 1 of 4...

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Score: 3/15 Points 20 % Page 1 of 4 Assignment Print View 11/15/2018 ...
9. Award: 0 out of 1.00 point 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 $638,000. 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 $1.70 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 10%. Use the MACRS depreciation schedule Year: 0 1 2 3 4 5 6 Thereafter Sales (millions of traps) 0 0.5 0.6 0.8 0.8 0.6 0.4 0 a. What is project NPV? (Negative amount should be indicated by a minus sign. Do not round intermediate .

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