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FastTrack Bikes, Inc. is thinking of developing a new composite road bike. Development will take six years and the cost is $209,700 per year. Once
FastTrack Bikes, Inc. is thinking of developing a new composite road bike. Development will take six years and the cost is $209,700 per year. Once in production, the bike is expected to make $301,841 per year for 10 years. The cash inflows begin at the end of year 7. For parts a-c, assume the cost of capital is 10.7% * Calculate the NPV of this investment opportunity. Should the company make the investment? * Calculate the IR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged. * How long must development last to change the decision? For parts d-f, assume the cost of capital is 14.3%. * Calculate the NPV of this investment opportunity. Should the company make the investment? * How much must this cost of capital estimate deviate to change the decision? * How long must development last to change the decision
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