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FastTrack Bikes Inc. is thinking of developing a new composite road bike. The development will take six years and the cost is $208,000 per year. Once in production, the bike is expected to make $312,000 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

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 inflows do not start until year 7.

For PART A:

Calculate the present value of the costs. The costs are the cash flow payments for years one through six.

Calculate the present value of the benefits

For PART C:

Calculate the present value of the costs.

Calculate the present value of the benefits

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