FastTrack Bikes, Inc is thinkang of developing a new composite road biko. Development wil thke six years and the cost is $184,000 per year Once in production, the bike is capected to make $276,000 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 investmen? b. By how much must the cost of capital ostimate deviate to change the decision? (Hint. Use Excol to calculate the IRR) c. What is the NPV of the investment if the cost of capital is 15% ? Note: Assume that ail cash fiows occur at the end of the appropriate year and that the inflows do not start until year 7. a. Calculate the NPV of this investment opportunity, ossuming all cash flows occur at the end of each year. Should the company make the investment? The present value of the costs is : (Round to the nearest dollar.) The peesent value of the benefits is 5 (Round to the nearest dollar) The net present value is $ (Round to the nearest dollar) You should the invetiment because the NPV is (Select from the drop-down menus.) b. By how much must the cost of capital estimate deviate to change the decision? (Hint Use Excel to calcustoto the IRR.) To change the decision, the deviation would need to be K. (Round to two decimal placen.) c. What is the NPV of the investment if the cost of captat is 15W ? The present value of the costs is 5 (Round to the nearest doliar) The present value of the benefits is 5 (Round to the nearest dollar,) Fastirack Bikes, Inc. is thinking of developing a new composite road bike. Development will take six years and the cost is $184,000 per year. Once in production, th make $276,000 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. The present value of the benefits is $ (Round to the nearest dollar.) The net present value is S (Round to the nearest dollar.) You should the investment because the NPV is (Select from the drop-down menus.) b. By how much must the cost of capital estimate deviate to change the decision? (Hint: Use Excel to calculate the IRR) To change the decision, the deviation would need to be \%. (Round to two decimal places.) c. What is the NPV of the investment if the cost of capitat is 15% ? The present value of the costs is $ (Round to the nearest dollar.) The present value of the benefits is 5 (Round to the nearest dollar.) The NPV will be s (Round to the nearest dollar.)
