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Superfast Bikes is thinking of developing a new composite road bike. Development will require that the company pay a cost of $208,500 at the end
Superfast Bikes is thinking of developing a new composite road bike. Development will require that the company pay a cost of $208,500 at the end of each year for the next 6 years. Once development of the bike has been completed 6 years from now, sales of the bike is expected to generate $296, 102 of net cash inflow per year for the following 10 years. Assume that the cash inflows are received by the company at the end of each yearly sales period, with the first inflow arriving 7 years from today. Assuming the cost of capital is 8.1% per annum: a. The NPV of this investment opportunity is $ (Round your answer to the nearest dollar) The company should make this investment. (Select the best choice below) False . b. The IRR of this investment opportunity is (Round your answer to two decimal places) Note: The IRR for this question will require Excel or a financial calculator. Students will not be required to do this in an exam unless you are told explicitly to do so. If the cost of capital is 8.1%, the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged is (Round your answer to two decimal places. Your answer should include the appropriate positiveegative sign.) years. c. For the decision to change, development must last (Round your answer to two decimal places) Assuming now that the cost of capital is instead 16.5% per annum: d. The NPV of this investment opportunity is $ (Round your answer to the nearest dollar (A positive NPV answer does not require a sign. A negative NPV requires you to use the "-" sign) The company should make this investment (Select the best choice below.) True e. If the cost of capital is 16.5%, the maximum deviation allowable in the cost of capital estimate to leave the decision changed is (Round your answer to two decimal places. Your answer should include the appropriate positiveegative sign.) years. f. For the decision to change, development must last (Round your answer to two decimal places)
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