FastTrackBikes, Inc. is thinking of developing a new composite road bike. Development will take six years and the cost is $210,700 per year. Once inproduction, the bike is expected to make $300,814 per year for 10 years. The cash inflows begin at the end of year 7.

For partsa-c, assume the cost of capital is 9.3%.

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

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 thedecision?

For partsd-f, assume the cost of capital is 14.3%.

d. Calculate the NPV of this investment opportunity. Should the company make theinvestment?

e. How much must this cost of capital estimate deviate to change thedecision?

f. How long must development last to change thedecision?