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Please explain how these can be answered, in a step by step basis. 10. *Superfast Bikes is thinking of developing a new composite road bike.
Please explain how these can be answered, in a step by step basis.
10. *Superfast Bikes is thinking of developing a new composite road bike. Development will take six years and the cost is $200 000 per year. Once in production, the bike is expected to make $300 000 per year for 10 years. The cash inflows begin at the end of year 7. Assume that the cost of capital is 10%. a. Calculate the NPV of this investment opportunity. Should the company make the investment? b. Calculate the IRR 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? (Not covered in lecture, so please ignore this part) Assume that the cost of capital is 14%. d. Calculate the NPV of this investment opportunity. Should the company make the investment? e. How much must this cost of capital estimate deviate to change the decision? f. How long must development last to change the decisionStep by Step Solution
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