Question

FastTrack Bikes, Inc. is thinking of developing a new composite road bike. Development will take six years and the cost is $183,000

per year. Once in production, the bike is expected to make $256,200 per year for 10 years. Assume the cost of capital is 10%.

a. Calculate the NPV of this investment opportunity, assuming all cash flows occur at the end of each year. Should the company make the investment?

b. By how much must the cost of capital estimate deviate to change the decision? (Hint: Use Excel to calculate the IRR.)

c. What is the NPV of the investment if the cost of capital is 13%?

Answer #1

FastTrack Bikes, Inc. is thinking of developing a new composite
road bike. Development will take six years and the cost is
$195,300
per year. Once in production, the bike is expected to make
$287,950
per year for
10
years. The cash inflows begin at the end of year 7.
For parts a-c, assume the cost of capital is
10.6%.
a. Calculate the NPV of this investment opportunity. Should the
company make the investment?
b. Calculate the IRR and use it...

FastTrack Bikes, Inc. is thinking of developing a new composite
road bike. Development will take six years and the cost is $207,500
per year. Once in production, the bike is expected to make
$290,728 per year for 10 years. The cash inflows begin at the end
of year 7.
For parts a-c, assume the cost of capital is 9.7 %.
a. Calculate the NPV of this investment opportunity. Should the
company make the investment?
b. Calculate the IRR and use...

FastTrack Bikes, Inc. is thinking of developing a new composite
road bike. Development will take six years and the cost is
$195,300
per year. Once in production, the bike is expected to make
$287,950
per year for
10
years. The cash inflows begin at the end of year 7.
For parts a-c, assume the cost of capital is
10.6%.
a. Calculate the NPV of this investment opportunity. Should the
company make the investment?
b. Calculate the IRR and use it...

ch 7
FastTrack Bikes, Inc. is thinking of developing a new composite
road bike. Development will take six years and the cost is $
205,000 per year. Once in production, the bike is expected to make
$ 328,000 per year for 10 years. Assume the cost of capital is 10
%.
a. Calculate the NPV of this investment opportunity, assuming
all cash flows occur at the end of each year. Should the company
make the investment?
b. By how much...

FastTrack Bikes, Inc. is thinking of developing a new composite
road bike. Development will take six years and the cost is
$200,000per year. Once in production, the bike is expected to
make $ 300,000
per year for10 years. The cash inflows begin at the end of year
7. For parts a-c, assume the cost of capital is 10.0 %
a. Calculate the NPV of this investment opportunity. Should the
company make the investment?
b. Calculate the IRR and use it...

FastTrack Bikes, Inc. is thinking of developing a new composite
road bike. Development will take six years and the cost is $196,100
per year. Once in production, the bike is expected to make
$287,713 per year for 10 years. The cash inflows begin at the end
of year 7.
For parts a-c, assume the cost of capital is 9.9 %
.a. Calculate the NPV of this investment opportunity.________
(Round to the nearest dollar.) Should the company make the
investment?
b....

FastTrack Bikes, Inc. is thinking of developing a new composite
road bike. Development will take six years and the cost
i$208,600
per year. Once in production, the bike is expected to make
$286,796 per year for 10years. The cash inflows begin at the end of
year 7.
For parts a-c, assume the cost of capital is
9.2%.
a. Calculate the NPV of this investment
opportunity. (Round to the nearest dollar.)
Should the company make the investment?
b. Calculate the IRR...

FastTrack Bikes, Inc. is thinking of developing a new composite
road bike. Development will take six years and the cost is $201,800
per year. Once in production, the bike is expected to make
$299,260 per year for 10 years. The cash inflows begin at the end
of year 7.For parts a-b, assume the cost of capital is 9.2%.
a. Calculate the NPV of this investment opportunity. Should the
company make the investment?
b. Calculate the IRR and use it to...

FastTrack Bikes, Inc. is thinking of developing a new composite
road bike. Development will take six years and the cost is
$200,000
per year. Once in production, the bike is expected to make
$300,000
per year for 10
years. The cash inflows begin at the end of year 7.For parts
a-c, assume the cost of capital is 10.0%.
a. Calculate the NPV of this investment opportunity. Should the
company make the investment?
b. Calculate the IRR and use it to...

FastTrack Bikes, Inc. is thinking of developing a new composite
road bike. Development will take six years and the cost is $200,000
per year. Once in production, the bike is expected to make $300,000
(after expenses) per year for 10 years. The cash inflows begin at
the end of year 7.
At FastTrack, there is a difference of opinion as to the "best"
decision rule to use. The four rules under consideration are NPV,
IRR, Payback Period and Profitability Index...

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