Question

In: Finance

Your company is considering the development of an electric bicycle. The development will take four years...

Your company is considering the development of an electric bicycle. The development will take four years and cost $100,000 per year. Once developed, the company expects to generate a positive cash flor of $150,000 per year for ten years. The cost of capital is 10%; assume all cash flows occur at the end of each year. What is the Net Present Value of the electric bicycle? Should the company invest in this product?

Solutions

Expert Solution

Solution:

The Net Present Value of the electric bicycle = $ 604,698.52

Since the NPV of the electric bicycle is positive, the company should invest in the project.

Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.

jeff jeffy answered 4 weeks ago
Next > < Previous

Related Solutions

A student is considering whether to finish their university program in four​ consecutive​ years, or take...
A student is considering whether to finish their university program in four​ consecutive​ years, or take a year off and work for some extra​ cash.​ ​​Required: ​​a. Identify at least two revenues or costs that are relevant to making this decision. Explain why each is relevant. ​​b. Identify at least two costs that would be considered sunk costs for this decision. ​​c. Comment on at least two qualitative consideration for this decision.
Boulderado has come up with a new composite snowboard. Development will take Boulderado four years and...
Boulderado has come up with a new composite snowboard. Development will take Boulderado four years and cost​ $250,000 per​ year, with the first of the four equal investments payable today upon acceptance of the project. Once in production the snowboard is expected to produce annual cash flows of​ $200,000 each year for 10 years. ​ Boulderado's discount rate is​ 10%. The NPV for​ Boulderado's snowboard project is closest​ to: A. ​$23,800 B.$46,900 C. ​$51,600 D. ​$228,900
Boulderado has come up with a new composite snowboard. Development will take Boulderado four years and...
Boulderado has come up with a new composite snowboard. Development will take Boulderado four years and cost $250,000 per year, with the first of the four equal investments payable today upon acceptance of the project. Once in production the snowboard is expected to produce annual cash flows of $200,000 each year for 10 years. Boulderado's discount rate is 10%. The IRR for boulderado's snow board project is closest to : A. 10.4% B.10.0% C.11.0% D.15.1%
2. A bicycle company is considering a range of bicycle offerings to extend its current single...
2. A bicycle company is considering a range of bicycle offerings to extend its current single range. A year 1 estimate of expanding their bicycle range is as follows:                                                                         Bicycle 1       Bicycle 2          Bicycle 3 Volume                                                            1,600            1,600                 800 Selling price                                                        $500            $1200               $900 Variable cost/unit                                               $350               $620               $590 Fixed assembly costs                                     $90,000         $136,000        $164,000 Additional information (further fixed costs) Sales and Marketing $172,000 Administration $190,000 Occupancy & Rent $376,000 Required:...
The quarterly sales of the TRK-50 mountain bike for the previous four years by a bicycle...
The quarterly sales of the TRK-50 mountain bike for the previous four years by a bicycle shop in Switzerland are presented in the table: Year   Quarter   Q = Sales   2010 1 10 2 31 3 43 4 16 2011 1 11 2 33 3 45 4 17 2012 1 13 2 34 3 48 4 19 2013 1 15 2 37 3 51 4 21 PLEASE USE EXCEL AND SHOW ALL WORK. Plot the sales against time. Use the data...
A company is considering an investment to build a new plant. It would take 2 years...
A company is considering an investment to build a new plant. It would take 2 years to construct the plant. The following investments would be made to build the plant: - $1.5 million for the land, in year 0 - $4 million to the building contractor at the end of year 1 - $6 million to the building contractor at the end of year 2 The equipment would be purchased and installed in year 2, at a cost of $13...
The Ithaca Company is considering leasing a machine for a period of four years. The cost...
The Ithaca Company is considering leasing a machine for a period of four years. The cost to buy the machine outright today is $90,000 and the machine has a normal expected economic life of 5 years. The lease payment that is required is based on an annual interest rate of 12% and a residual of $18,000 at the end of the lease. Find the following for year 1 and year 2 Beginning Balance of Lease Liability Annual Lease Payment Interest...
Mercer Development is considering the potential of four different development projects. Each project would be completed...
Mercer Development is considering the potential of four different development projects. Each project would be completed in at most three years. The required cash outflow for each project is given in the table below, along with the net present value (NPV) of each project and the budget cash that is available to spend for each year. Cash Outflow Required ($ million) Budget Cash Available ($ million) Project 1 Project 2 Project 3 Project 4 Year 1 10 9 6 12...
Your company purchased a machine for $60,000. The loan is for four years and calls for...
Your company purchased a machine for $60,000. The loan is for four years and calls for 8% interest. What will be the monthly payment due on the loan?
Your company is considering to take a loan from the local bank. Bank charges a 1.25%...
Your company is considering to take a loan from the local bank. Bank charges a 1.25% interest rate per quarter. Then the rate 1.25*4 =5% is called ____    annual percentage rate discount rate compound interest rate effective annual rate
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT