Superfast Bikes is thinking of developing a new composite road bike. Development will take six years and the cost is $ 204 100 per year. Once inproduction, the bike is expected to make $ 295 186 per year for years. The cash inflows begin at the end of year 7.

Assuming the cost of capital is 10.1 %:

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?

Assume the cost of capital is 13.1 %

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?