Superfast Bikes is thinking of developing a new composite road bike. Development will require that the company pay a cost of $208,500 at the endof each year for the next 6 years. Once development of the bike has been completed 66 years from now, sales of the bike is expected to generate $296,102 of net cash inflow per year for the following 10 years. Assume that the cash inflows are received by the company at the end of each yearly sales period, with the first inflow arriving 7 years from today.

Assuming the cost of capital is 10.8% per annum:

a. The NPV of this investment opportunity is $. (Round your answer to the nearest dollar)

The company should make this investment. (Select the best choice below) False/True(No answer given)

b. The IRRof this investment opportunity is %. (Round your answer to two decimal places)

Note:The IRR for this question will require Excel or a financial calculator. Students will not be required to do this in an exam unless you are told explicitly to do so. In Excel, you could try either the =IRR function or you could try to use 'Goal Seek' (on Data -> What-If Analysis -> Goal Seek).

Assume that you have estimated that the correct cost of capital is 10.8%. Given the IRR you have calculated previously, by how much could your cost of capital estimate be "wrong" by without changing your overall decision about accepting or rejecting the project? The maximum possible deviation in our cost of capital estimate that would leave our final decision unchanged is %. (Round your answer to two decimal places.Please enter this deviation as a positive number. i.e. Give the absolute value) (e.g. Hypothetically (using different numbers), if you estimated an IRR of 42.00% and the project's cost of capital is estimated to be 69.00%, your decision would be to reject. And that cost of capital estimate could deviate by just under -27.00% from your original estimate of 69.00% and you'd still reject the project. An answer of 27.00% would therefore be the maximum possible deviation.)

c. For the decision to change, development must last years. (Round your answer to two decimal places)

Assuming now that the cost of capital is instead 13.2% per annum:

d. The NPV of this investment opportunity is $$. (Round your answer to the nearest dollar) (A positive NPV answer does not require a sign. A negative NPV requires you to use the "-" sign)

The company should make this investment. (Select the best choice below.) False/True(No answer given)

e. If the cost of capital is 13.2%, the maximum deviationallowable in the cost of capital estimate to leave the decision (that you just chose above) unaffected is %. (Round your answer to two decimal places. Please enter this deviation as a positive number. i.e. Give the absolute value) (e.g. Hypothetically (using different numbers), if you estimated an NPV of 123,456,789 dollars when project's cost of capital is estimated to be say 27%, your decision would be to accept. And if you estimated that the project would have an NPV of zero at a discount rate of 42%, then the actual cost of capital estimate of 27% could deviate by just under +15% from your original estimate of 27% and you'd still accept the project. An answer of 15% would therefore be the maximum possible deviation.)

f. For the decision to change, development must last years. (Round your answer to two decimal places)