. A company has developed a new trap. It can go into production for an initial investment in equipment of $6 million. The equipment will be depreciated straight-line over 5 years to a value of zero, but can be sold for $500,000 after five years. The firm believes that working capital at each date must be maintained at a level of 10 percent of the next yearâs forecast sales. The firm estimates production costs equal to $1.50 per trap and believes that the trap can be sold for $4 each. Sales forecasts are given in the following table. The project will come to an end in 5 years, when the trap becomes technologically obsolete. The firmâs tax bracket is 35 percent, and the required return on the project is 12 percent. What is the project NPV?
0
1
2
3
4
5
Sales (millions of traps)
-
0.5
0.6
1.0
1.0
0.6
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. A company has developed a new trap. It can go into production for an initial investment in equipment of $6 million. The equipment will be depreciated straight-line over 5 years to a value of zero, but can be sold for $500,000 after five years. The firm believes that working capital at each date must be maintained at a level of 10 percent of the next yearâs forecast sales. The firm estimates production costs equal to $1.50 per trap and believes that the trap can be sold for $4 each. Sales forecasts are given in the following table. The project will come to an end in 5 years, when the trap becomes technologically obsolete. The firmâs tax bracket is 35 percent, and the required return on the project is 12 percent. What is the project NPV?
0 | 1 | 2 | 3 | 4 | 5 | |
Sales (millions of traps) | - | 0.5 | 0.6 | 1.0 | 1.0 | 0.6 |
Show work.