FastTrack​ Bikes, Inc. is thinking of developing a new composite road bike. Development will take 6 years and the cost is $ 208000 per year. Once in​ production, the bike is expected to make ​$332800 per year for 10 years. Assume the cost of capital is 9 %. What's the IRR of this opportunity?

To calculate the **Internal Rate of Return (IRR)** for the project, we need to solve for the discount rate that makes the Net Present Value (NPV) of the project's cash flows equal to zero. 

Here's a breakdown of the cash flows:

1. **Development phase (Years 0 to 5):** Costs \$208,000 per year for 6 years (negative cash flows).
2. **Production phase (Years 6 to 15):** Generates \$332,800 per year for 10 years (positive cash flows).

The formula for NPV is:

\[
NPV = \sum \left( \frac{CF_t}{(1+r)^t} \right)
\]
Where:
- $ CF_t $ is the cash flow in year $ t $,
- $ r $ is the IRR,
- $ t $ is the year of the cash flow.

At IRR, the NPV should be 0, so the equation becomes:

\[
0 = -\frac{208000}{(1+r)^1} - \frac{208000}{(1+r)^2} - \cdots - \frac{208000}{(1+r)^6} + \frac{332800}{(1+r)^7} + \cdots + \frac{332800}{(1+r)^{16}}
\]

Now, let's solve for the IRR using a financial formula approach.It seems that I cannot use the specific function for calculating the IRR directly in this environment. However, I can guide you through how to solve this manually or using a financial calculator.

Here's the method:

### Step-by-Step Calculation

1. **Initial Cash Outflows**: There are 6 negative cash flows of \$208,000 each, starting from Year 0 to Year 5.
   \[
   CF_0 = CF_1 = CF_2 = CF_3 = CF_4 = CF_5 = -208,000
   \]
2. **Cash Inflows**: For the next 10 years (Year 6 to Year 15), the project will generate \$332,800 per year.
   \[
   CF_6 = CF_7 = \cdots = CF_{15} = 332,800
   \]

3. **Setting NPV = 0**: To solve for the IRR, you need to use trial and error or a financial calculator where the NPV of the cash flows equals zero.

You can use Excel's **`=IRR()`** function or any financial calculator to compute the IRR for the cash flow series:
- Input the sequence: `-208000 (for 6 years), 332800 (for 10 years)` into the formula.

Would you like me to show how to calculate IRR using Excel or suggest another method?

FastTrack​ Bikes, Inc. is thinking of developing a new composite road bike. Development will take 6 years and the cost is $208,000 per year. Once in production, the bike is expected to make $332,800 per year for 10 years. Assume the cost of capital is 9%. What's the IRR of this opportunity?

Learn how to calculate the Internal Rate of Return (IRR) for a 16-year bike development project by FastTrack Bikes, Inc., including six years of $208,000 in development costs and ten years of $332,800 in production revenue. This example applies financial concepts like NPV and IRR, suitable for college-level finance students.

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