Bicycles and More, Inc. is considering constructing a new plant in Seattle, Washington to produce

bicycles. The demand for bicycles by people of all ages has increased greatly in recent months, due to an

increased interest in healthy life styles. The plant will be quite labor intensive, including hand-painting

for some of the bicycle products. The following information about the proposed Seattle, Washington

production facility has been collected:

Description	Value
Annual projected volume of bicycles	250,000
Estimated average selling price per bicycle	$125
Estimated variable production cost per bicycle	$75
Annual Fixed Expenses*	$9,500,000
Estimated effective tax rate	38%
Initial investment cost at t = 0	($6,000,000)
Weighted Average Cost of Capital (WACC)	10%

*Annual Fixed Expenses exclude Depreciation Expense.

The variables listed in the chart above are expected to apply to operations at the Seattle bicycle plant for three years. At the conclusion of the three-year period, the project will terminate. The initial investment cost will be depreciated using the straight-line method over a three-year useful life.

a. Calculate the After-Tax Cash Flow that will occur in Year One (t = 1) when the bicycle plant is in operation. (Note: You can assume that this same After-Tax Cash Flow amount will also apply to Years 2 and 3 of the analysis.)

b. Based upon your After-Tax Cash Flow value that you calculated in Part A for Years 1 through 3, what is the Net Present Value (NPV) of this investment project?

c. Should Bicycles and More, Inc. construct the new bicycle plant that is proposed for Seattle,Washington? Why or why not?