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 $282,000 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 13 %

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.The present value of the costs is ________$ (Round to the nearestdollar.)

The present value of the benefits is _________$ (Round to the nearestdollar.)

The net present value is _________$ (Round to the nearestdollar.)

.

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

To change thedecision, the deviation would need to be _________(Round to two decimalplaces.)

c. What is the NPV of the investment if the cost of capital is 13 %

The present value of the costs is ________$(Round to the nearestdollar.)

The present value of the benefits is _______$(Round to the nearestdollar.)

The NPV will be ________$(Round to the nearestdollar.)