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Superfast Bikes is thinking of developing a new composite road bike. Development will take six years...

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Finance

Superfast Bikes is thinking of developing a new composite roadbike. Development will take six years and the cost is $ 198 400 peryear. Once in? production, the bike is expected to make $ 295 110per year for 10 years. The cash inflows begin at the end of year 7.Assuming the cost of capital is 9.2 %?:

a. Calculate the NPV of this investment opportunity. Should thecompany make the? investment?

b. Calculate the IRR and use it to determine the maximumdeviation allowable in the cost of capital estimate to leave thedecision unchanged.

c. How long must development last to change the? decision?Assume the cost of capital is 14.7 %.

d. Calculate the NPV of this investment opportunity. Should thecompany make the? investment?

e. How much must this cost of capital estimate deviate to changethe? decision? f. How long must development last to change the?decision?

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