Please show step by step how to solve:

Answer: 18,801.58

Thank you.

Your marketing department has come up with two potential electric bikes which you believe will only have a large enough demand to maintain market for five years. You believe that the adoption of one of those two products will not affect the viability of the other product. (The projects are independent)

You estimate that Bike 1 will cost $54,194 up front to set up, whereas Bike 2 will cost $43,644 up front. The expected cash flows from those two bike designs over the life of the products can be found in the table below. Both projects have similar risks to current projects at Bikes for All, therefore the appropriate discount rate for both projects should be our current WACC of 6.64%.

Calculate the net present value of both projects, and enter in the box below how much the value of the firm is expected to increase based on this capital budget (please enter the amount to the nearest penny).

	Style 1	Style 2
Year 1	$20,035	$20,239
Year 2	$17,213	$13,869
Year 3	$12,848	$12,698
Year 4	$12,322	$9,974
Year 5	$10,580	$7,674

Answer: 18,801.58

How:

To successfully answer this question you will have to:

Calculate the NPV of each project.

Since the projects are independent, you could adopt, Style 1 only, Style 2 only, both Styles 1 & 2, or neither 1 nor 2.

Identify all projects with NPV>0.

Since the question is, how much the value of the firm will increase, you should add all adopted project NPVs together and enter that sum as the amount the value of the firm should increase. If neither project should be adopted, the correct answer will be 0.