Better Mousetraps has developed a new trap. It can go intoproduction for an initial investment in equipment of $6.3 million.The equipment will be depreciated straight - line over 6 years to avalue of zero, but, in fact, it can be sold after 6 years for$538,000. The firm believes that working capital at each date mustbe maintained at a level of 15% of next year’s forecast sales. Thefirm estimates production costs equal to $1.00 per trap andbelieves that the traps can be sold for $4 each. Sales forecastsare given in the following table. The project will come to an endin 6 years, when the trap becomes technologically obsolete. Thefirm’s tax bracket is 35%, and the required rate of return on theproject is 9%.
| Year: | 0 | 1 | 2 | 3 | 4 | 5 | 6 | Thereafter |
| Sales (millions of traps) | 0 | .4 | .5 | .7 | .7 | .5 | .4 | 0 |
Suppose the firm can cut its requirements for working capital inhalf by using better inventory control systems. By how much willthis increase project NPV? (Enter your answer in millionsrounded to 4 decimal places.)
| Change in NPV | Ă‚Â Ă‚Â | million |
