FastTrackBikes, Inc. is thinking of developing a new composite road bike. Development will take six years and the cost is $210,300 per year. Once inproduction, the bike is expected to make $293,273 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 9.8%.

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 parts d-f, assume the cost of capital is 13.7%.

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?

a. Calculate the NPV of this investment opportunity.

If the cost of capital is 9.8%, the NPV is $

nothing

. (Round to the nearestdollar.)

Should the company make thisinvestment?(Select the best choicebelow.)

A.

Reject the investment because the NPV is equal to or greater than zero($0).

B.

Accept the investment because the NPV is equal to or less than zero($0).

C.

RejecttheinvestmentbecausetheNPVislessthanzero($0).

D.

AccepttheinvestmentbecausetheNPVisequaltoorgreaterthanzero($0).

b. Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged.

The IRR is

nothing

%. (Round to two decimalplaces.)