Question
In: Finance
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
$197,900 per year. Once in production, the bike is expected to make $289,708 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 10.1%.
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?
For parts d-f, 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
Cost of Project = $197,900 for six years, i.e., $197900*6 = $11,87,400
Rate = 10.1% (for part a) & 14% (for part d)
jeff jeffy answered 2 years agoRelated Solutions
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road bike. Development will take six years and the cost is $201,000
per year. Once in production, the bike is expected to make
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