Calculate the npv of the investment opportunity


Problem

FastTrack Bikes, Inc. is thinking of developing a new composite road bike. Development will take six years and the K cost is $212,000 per year. Once in production, the bike is expected to make $339,200 per year for 10 years. Assume the cost of capital is 10%.

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

2) By how much must the cost of capital estimate deviate to change the decision?

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Finance Basics: Calculate the npv of the investment opportunity
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