Question: FastTrack Bikes Inc. is thinking of developing a new composite road bike. Development will take six years and the cost is $209,000 per year. Once

FastTrack Bikes Inc. is thinking of developing a new composite road bike. Development will take six years and the cost is $209,000 per year. Once in production, the bike is expected to make $334,400 per year for 10 years. Assume the cost of capital is 10%. a. Calculate the NPV of this investment opportunity. Should the company make the investment? b. Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged (Hint: Use Excel to calculate the IRR.) c. Calculate the NPV of this investment opportunity assuming the cost of capital is 14%. Should the company make the investment given this new assumption? Note: Assume that all cash flows occur at the end of the appropriate year and that the the inflows do not start until year 7
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
