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.
