Purchase Solution

Project Evaluation using NPV

Not what you're looking for?

Ask Custom Question

Better Mousetraps has developed a new trap. It can go into production for an initial investment in equipment of $6 million. The equipment will be depreciated straightline over 5 years to a value of zero, but in fact it can be sold after 5 years for $500,000. The firm believes that working capital at each date must be maintained at a level of 10 percent of next year's forecast sales. The firm estimates production costs equal to $1.50 per trap and believes that the traps 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 rate of return on the project is 12 percent. What is project NPV?

Year 0: 0 (sales in millions of traps)
Year 1: .5
Year 2: .6
Year 3: 1.0
Year 4: 1.0
Year 5: .6
Therafter: 0

Purchase this Solution

Solution Summary

The solution evaluates a project (production of mousetraps) using NPV analysis

Purchase this Solution


Free BrainMass Quizzes
Basics of corporate finance

These questions will test you on your knowledge of finance.

Organizational Leadership Quiz

This quiz prepares a person to do well when it comes to studying organizational leadership in their studies.

Introduction to Finance

This quiz test introductory finance topics.

MS Word 2010-Tricky Features

These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.

Marketing Management Philosophies Quiz

A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.