FastTrack? Bikes, Inc. is thinking of developing a new composite road bike. Development will take six years and the cost is $197,000 per year. Once in? production, the bike is expected to make $295,500 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%?
Note: Assume that all cash flows occur at the end of the appropriate year and that the inflows do not start until year 7.
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?
The present value of the costs is $____ (Round to the nearest? dollar.)
The present value of the benefits is ?$____(Round to the nearest? dollar.)
The net present value is ?$____?(Round to the nearest? dollar.)
You should (accept or reject) the investment because the NPV is (positive or negative)
b. By how much must the cost of capital estimate deviate to change the? decision? (Hint: Use Excel to calculate the? IRR.)
To change the? decision, the deviation would need to be _____%.(Round to two decimal? places.)
c. What is the NPV of the investment if the cost of capital is 13%??
The present value of the costs is ?$____ ?(Round to the nearest? dollar.)
The present value of the benefits is ?$____ (Round to the nearest? dollar.)
The NPV will be ?$____ (Round to the nearest? dollar.)