FastTrack Bikes, Inc. is thinking of developing a new composite road bike. Development will take six years and the cost is $198,000 per year. Once in production, the bike is expected to make $316,800 per year for 10 years. Assume the cost of capital is 10%. Calculate the NPV of this investment opportunity, assuming all cash flows occur at the end of each year. Should the company make the investment? (Round to the nearestdollar.) By how much must the cost of capital estimate deviate to change the decision? (Hint: Use Excel to calculate the IRR.) 3. What is the NPV of the investment if the cost of capital is 15%? Note: Assume that all cash flows occur at the end of the appropriate year and that the inflows do not start until year 7.
FastTrack Bikes, Inc. is thinking of developing a new composite road bike. Development will take six years and the cost is $198,000 per year. Once in production, the bike is expected to make $316,800 per year for 10 years. Assume the cost of capital is 10%. Calculate the NPV of this investment opportunity, assuming all cash flows occur at the end of each year. Should the company make the investment? (Round to the nearestdollar.) By how much must the cost of capital estimate deviate to change the decision? (Hint: Use Excel to calculate the IRR.) 3. What is the NPV of the investment if the cost of capital is 15%? Note: Assume that all cash flows occur at the end of the appropriate year and that the inflows do not start until year 7.
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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FastTrack Bikes, Inc. is thinking of developing a new composite road bike. Development will take six years and the cost is $198,000 per year. Once in production, the bike is expected to make $316,800 per year for 10 years. Assume the cost of capital is 10%.
- Calculate the NPV of this investment opportunity, assuming all cash flows occur at the end of each year. Should the company make the investment? (Round to the nearestdollar.)
- By how much must the cost of capital estimate deviate to change the decision?
(Hint: Use Excel to calculate the
3. What is the NPV of the investment if the cost of capital is 15%?
Note: Assume that all cash flows occur at the end of the appropriate year and that the inflows do not start until year 7.
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