FastTrack Bikes, Inc. is thinking of developing a new composite road bike. Development will take six years and the cost is $207,800 per year. Once in production, the bike is expected to make $292,039 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%. . Calculate the NPV of this investment opportunity. Should the company make the investment? . Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged. . How long must development last to change the decision?

FastTrack Bikes, Inc. is thinking of developing a new composite road bike. Development will take six years and the cost is $207,800 per year. Once in production, the bike is expected to make $292,039 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%. . Calculate the NPV of this investment opportunity. Should the company make the investment? . Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged. . How long must development last to change the decision?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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