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FastTrack? Bikes, Inc. is thinking of developing a new composite road bike. The development will take...

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Finance

FastTrack? Bikes, Inc. is thinking of developing a new compositeroad bike. The development will take six years and the cost is $188000 per year. Once in? production, the bike is expected to make$ 282000 per year for 10 years. Assume the cost of capital is 10%.

a. Calculate the NPV of this investment? opportunity, assumingall cash flows occur at the end of each year. Should the companymake the? investment?

b. By how much must the cost of capital estimate deviate tochange the? decision? ?(Hint?: Use Excel to calculate the?IRR.)

c. What is the NPV of the investment if the cost of capital is13 %?? Note?: Assume that all cash flows occur at the end of theappropriate year and that the inflows do not start until year7.

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