Superfast Bikes is thinking of developing a new composite road bike. Development will take 6 years and the cost is $208,500 per year. Once in production, the bike is expected to make $296,102 per year for 10 years. The cash inflows begin at the end of year 7. Assuming the cost of capital is 9.9% per annum: a. The NPV of this investment opportunity is $. (Round your answer to the nearest dollar) Should the company make this investment? b. The IRR of this investment opportunity is %. (Round your answer to two decimal places) Note: The IRR for this question will require Excel or a financial calculator. Students will not be required to do this in an exam unless you are told explicitly to do so. If the cost of capital is 9.9%, the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged is %. (Round your answer to two decimal places. Your answer should include the appropriate positive/negative sign.) c. For the decision to change, development must last _____ years. (Round your answer to two decimal places)
Superfast Bikes is thinking of developing a new composite road bike. Development will take 6 years and the cost is $208,500 per year. Once in production, the bike is expected to make $296,102 per year for 10 years. The
Assuming the cost of capital is 9.9% per annum:
a. The
(Round your answer to the nearest dollar)
Should the company make this investment?
b. The
(Round your answer to two decimal places)
Note: The IRR for this question will require Excel or a financial calculator. Students will not be required to do this in an exam unless you are told explicitly to do so.
(Round your answer to two decimal places. Your answer should include the appropriate positive/negative sign.)
(Round your answer to two decimal places)
Assuming now that the cost of capital is instead 12.4% per annum:
d. The NPV of this investment opportunity is $.
(Round your answer to the nearest dollar)
(A positive NPV answer does not require a sign. A negative NPV requires you to use the "-" sign)
Should the company make this investment?
e. If the cost of capital is 12.4%, the maximum deviation allowable in the cost of capital estimate to leave the decision changed is %.
(Round your answer to two decimal places. Your answer should include the appropriate positive/negative sign.)
(Round your answer to two decimal places)
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