Question
In: Finance
Superfast Bikes is thinking of developing a new composite road bike. Development will take six years...
Superfast Bikes is thinking of developing a new composite road bike. Development will take six years and the cost is $ 198 400 per year. Once in production, the bike is expected to make $ 295 110 per year for 10 years. The cash inflows begin at the end of year 7. Assuming 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 determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged.
c. How long must development last to change the decision? Assume the cost of capital is 14.7 %.
d. Calculate the NPV of this investment opportunity. Should the company make the investment?
e. How much must this cost of capital estimate deviate to change the decision? f. How long must development last to change the decision?
Solutions
Expert Solution
Following image provides answers to questions a and b. All formulae are highlighted in orange and answers in blue.
Following image provides answers for questions c and d:
jeff jeffy answered 6 months agoRelated Solutions
Superfast Bikes is thinking of developing a new composite road bike. Development will take six years...
Superfast Bikes is thinking of developing a new composite road
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FastTrack Bikes, Inc. is thinking of developing a new composite road bike. Development will take six...
FastTrack Bikes, Inc. is thinking of developing a new composite
road bike. Development will take six years and the cost is
$211,400
per year. Once in production, the bike is expected to make
$299,947
per year for
10
years. The cash inflows begin at the end of year 7.
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FastTrack Bikes, Inc. is thinking of developing a new composite road bike. Development will take six...
FastTrack Bikes, Inc. is thinking of developing a new composite
road bike. Development will take six years and the cost is
$223,000 per year. Once in production, the bike is expected to
make $ 356,800 per year for 10 years. Assume the cost of capital is
10%
Please calculate the following:
A) The present value of the costs is (Round to the nearest
dollar.)
B) The present value of the benefits is (Round to the nearest
dollar.)
FastTrack Bikes, Inc. is thinking of developing a new composite road bike. Development will take six...
FastTrack Bikes, Inc. is thinking of developing a new composite
road bike. Development will take six years and the cost is $223,000
per year. Once in production, the bike is expected to make $
356,800 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...
FastTrack? Bikes, Inc. is thinking of developing a new composite road bike. Development will take six...
FastTrack? Bikes, Inc. is thinking of developing a new composite
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$303,890 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 9.6%.
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...
FastTrack? Bikes, Inc. is thinking of developing a new composite
road bike. Development will take six years and the cost is $ 200
comma 000 $200,000 per year. Once in? production, the bike is
expected to make $ 300 comma 000 $300,000 per year for 10 10 years.
Assume the cost of capital is 10 % 10%. a. Calculate the NPV of
this investment? opportunity, assuming all cash flows occur at the
end of each year. Should the company make...
FastTrack Bikes, Inc. is thinking of developing a new composite road bike. Development will take six...
FastTrack Bikes, Inc. is thinking of developing a new composite
road bike. Development will take six years and the cost is
$207,300
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$298,686
per year for
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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 it...
FastTrack Bikes, Inc. is thinking of developing a new composite road bike. Development will take six...
FastTrack Bikes, Inc. is thinking of developing a new composite
road bike. Development will take six years and the cost is
$ 200 comma 000$200,000
per year. Once in production, the bike is expected to make
$ 300 comma 000$300,000
per year for
1010
years. The cash inflows begin at the end of year 7.
For parts a-c, assume the cost of capital is
10.0 %10.0%.
a. Calculate the NPV of this investment opportunity. Should the
company make the investment?...
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