Question

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 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 14 %​? Note​: Assume that all cash flows occur at the end of the appropriate year and that the inflows do not start until year 7.

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

Answer 1

costs form yaer 1 to 6 and Benefits starts from year 7 to 16