Question: (Quantitative Question) FastTrack Bikes, Inc., Is thinking of developing a new composite road bike. Development will take six years and the cost is $200,000 per
(Quantitative Question) FastTrack Bikes, Inc., Is thinking of developing a new composite road bike. Development will take six years and the cost is $200,000 per year (costs are incurred at the end of the year). Once in production, the bike is expected to make $300,000 per year for 11 years. The cash inflows begin at the end of year 7. ssuming the cost of capital is 10%. a. Calculate the NPV of this investment opportunity. $ (Round to 2 decimal places) b. Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged. % (Round to 2 decimal places) c. Should the company make the investment if the goal is to maximize stockholder wealth? Explain. Write your answers both in the spaces above and on the empty pages on which you will show your work for each part (including a timeline for parts a and b)
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
