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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 1 hour ago
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