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Part $1$

FastTrack$$ Bikes, Inc. is thinking of developing a new composite road bike. Development will take $6$ years and the cost is $ $201$ comma $000$ per year. Once in$$ production, the bike is expected to make $$$$301$ comma $500$ per year for $10$ years. Assume the cost of capital is $10\%.$

a$.$ Calculate the NPV of this investment$$ opportunity, assuming all cash flows occur at the end of each year. Should the company make the$$ investment?

b$.$ By how much must the cost of capital estimate deviate to change the$$ decision? $($Hint$$: Use Excel to calculate the$$ IRR.$)$

c$.$ 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 $7.$

Question content area bottom

Part $1$

a$.$ Calculate the NPV of this investment$$ opportunity, assuming all cash flows occur at the end of each year. Should the company make the$$ investment?

The present value of the costs is $$$

$$

enter your response here. $($Round to the nearest$$ dollar.$)$

Part $2$

The present value of the benefits is $$$

$$

enter your response here. $($Round to the nearest$$ dollar.$)$

Part $3$

The NPV of the investment opportunity is $$$

$$

enter your response here. $($Round to the nearest$$ dollar.$)$

Part $4$

You should

$$

accept

reject

the investment because the NPV is

$$

negative

positive

$.($Select from the$$ drop$-$down menus.$)$

Part $5$

b$.$ By how much must the cost of capital estimate deviate to change the$$ decision? $($Hint$$: Use Excel to calculate the$$ IRR.$)$

The IRR of the investment opportunity is

$$

enter your response here$\%.($Round to two decimal$$ places.$)$

Part $6$

To change the$$ decision, the deviation would need to be

$$

enter your response here$\%.($Round to two decimal$$ places.$)$

Part $7$

c$.$ What is the NPV of the investment if the cost of capital is $15\%?$

If the cost of capital is $15\%,$ the present value of the costs is $$$

$$

enter your response here. $($Round to the nearest$$ dollar.$)$

Part $8$

If the cost of capital is $15\%,$ the present value of the benefits is $$$

$$

enter your response here. $($Round to the nearest$$ dollar.$)$

Part $9$

If the cost of capital is $15\%,$ the NPV of the investment is $$$

$$

enter your response here. $($Round to the nearest$$ dollar.$)$

The present value of the costs is $$($Round to the nearest dollar.$)$The present value of the benefits is $$($Round to the nearest dollar.$)$The NPV of the investment opportunity is $$($Round to the nearest dollar.$)$You shouldthe investment because the NPV isthe investment because the NPV is$($Select from the drop$-$down menus.$)$The IRR of the investment opportunity is$($Round to two decimal places.$)$To change the decision, the deviation would need to be$($Round to two decimal places.$)$If the cost of capital is $15\%,$ the present value of the costs is $$($Round to the nearest dollar.$)$If the cost of capital is $15\%,$ the present value of the benefits is $$($Round to the nearest dollar.$)$If the cost of capital is $15\%,$ the NPV of the investment is $$($Round to the nearest dollar.$)$