FastTrack Bikes, Inc. is thinking of developing a new composite road bike. Development will take six years and thecost is $222,000 per year. Once in production, the bike is expected to make $310,800 per year for 10 years.Assume the cost of capital is 10%.a. Calculate the NPV of this investment opportunity, assuming all cash flows occur at the end of each year. Shouldthe company make the investment?b. By how much must the cost of capital estimate deviate to change the decision? (Hint: Use Excel to calculate theIRR.)c. What is the NPV of the investment if the cost of capital is 15%?Note: Assume that all cash flows occur at the end of the appropriate year and that the inflows do not startuntil year 7.

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Description: FastTrack Bikes, Inc. is thinking of developing a new composite road bike. Development will take six years and thecost is $222,000 per year. Once in production, the bike is expected to make $310,800 per year for 10 years.Assume the cost of capital i

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FastTrack Bikes, Inc. is thinking of developing a new composite road bike. Development will take six years and th cost is $222,000 per year. Once in production, the bike is expected to make $310,800 per year for 10 years. Assume the cost of capital is 10%. a. Calculate the NPV of this investment opportunity, assuming all cash flows occur at the end of each year. Shoul the company make the investment? b. By how much must the cost of capital estimate deviate to change the decision? (Hint: Use Excel to calculate th IRR.) c. What is the NPV of the investment if the cost of capital is 15%? Note: Assume that all cash flows occur at the end of the appropriate year and that the inflows do not star until year 7

FastTrack Bikes, Inc. is thinking of developing a new composite road bike. Development will take six years and th cost is $222,000 per year. Once in production, the bike is expected to make $310,800 per year for 10 years. Assume the cost of capital is 10%. a. Calculate the NPV of this investment opportunity, assuming all cash flows occur at the end of each year. Shoul the company make the investment? b. By how much must the cost of capital estimate deviate to change the decision? (Hint: Use Excel to calculate th IRR.) c. What is the NPV of the investment if the cost of capital is 15%? Note: Assume that all cash flows occur at the end of the appropriate year and that the inflows do not star until year 7

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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