FastTrack Bikes, Inc. is thinking of developing a new composite road bike. Development will take six years and the cost is $207,800 per year. Once in production, the bike is expected to make $292,039 per year for 10 years. The cash inflows begin at the end of year 7. For parts a-c, assume the cost of capital is 9.6%. . Calculate the NPV of this investment opportunity. Should the company make the investment? . Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged. . How long must development last to change the decision?

FastTrack Bikes, Inc. is thinking of developing a new composite road bike. Development will take six years and the cost is $207,800 per year. Once in production, the bike is expected to make $292,039 per year for 10 years. The cash inflows begin at the end of year 7. For parts a-c, assume the cost of capital is 9.6%. . Calculate the NPV of this investment opportunity. Should the company make the investment? . Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged. . How long must development last to change the decision?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 13E: Buena Vision Clinic is considering an investment that requires an outlay of 600,000 and promises a...

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