Bikes, Inc., is thinking of developing a new composite road bike. Development will take six years and the cost is $$200,000$ per year. Once in production, the bike is expected to make $$300,000$ per year for $10$ years. The cash inflows begin at the end of year $7.$

Assuming 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$.$ How long must development last to change the decision?

Assuming the cost of capital is $14\%$:

a$.$ Calculate the NPV of this investment opportunity. Should the company make the investment?

b$.$ How much must this cost of capital estimate deviate to change the decision?

c$.$ How long must development last to change the decision?