What is the project npv, The firm's tax bracket is 35

What is the project npv

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Reference no: EM131881466

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 year's 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 firm's 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

Reference no: EM131881466

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