FastTrackBikes, Inc. is thinking of developing a new composite road bike. Development will take six years and the cost is $188,000 per year. Once inproduction, the bike is expected to make $263,200 per year for 10 years. Assume the cost of capital is 10%.

a. Calculate the NPV of this investmentopportunity, assuming all cash flows occur at the end of each year. Should the company make theinvestment?

b. By how much must the cost of capital estimate deviate to change thedecision? (Hint: Use Excel to calculate theIRR.)

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.

a. Calculate the NPV of this investmentopportunity, assuming all cash flows occur at the end of each year. Should the company make theinvestment?

The present value of the costs is $

nothing

. (Round to the nearestdollar.)

The present value of the benefits is $

nothing

. (Round to the nearestdollar.)

The net present value is $

nothing

. (Round to the nearestdollar.)