Net Present Value Method for a Service CompanyOpulence Corporation has recently placed into service some of the largest cruise ships in the world. Oneof these ships, the Bellwether, can hold up to 3,200 passengers and it can cost $640 million to build.Assume the following additional information:There will be 300 cruise days per year operated at a full capacity of 3,200 passengers.• The variable expenses per passenger are estimated to be $95 per cruise day.The revenue per passenger is expected to be $475 per cruise day.The fixed expenses for running the ship, other than depreciation, are estimated to be $94,848,000per year.• The ship has a service life of 10 years, with a residual value of $100,000,000 at the end of 10 years.Present Value of $1 at Compound InterestYear6%10%12%15%20%10.9430.9090.8930.8700.83320.8900.8260.7970.7560.6940.8400.7510.7120.6580.57940.7920.6830.6360.5720.4820.7470.6210.5670.4970.40260.7050.5640.5070.4320.33570.6650.5130.4520.3760.27980.6270.4670.4040.3270.2330.5920.4240.3610.2840.194100.5580.3860.3220.2470.1623.5. Present Value of an Annuity of $1 at Compound InterestYear6%10%12%15%20%10.9430.9090.8930.8700.83321.8331.7361.6901.6261.52832.6732.4872.4022.2832.10643.4653.1703.0372.8552.5894.2123.7913.6053.3532.99164.9174.3554.1113.7853.3265.5824.8684.5644.1603.60586.2105.3354.9684.4873.83796.8025.7595.3284.7724.031107.3606.1455.6505.0194.192a. Determine the annual net cash flow from operating the cruise ship.Revenues$4Variable expensesFixed expenses (other than depreciation)Annual net cash flowb. Determine the net present value of this investment, assuming a 10% minimum rate of return. Usethe present value tables provided above. If required, round to the nearest whole dollar.Present value of annual net cash flowsPresent value of residual valueTotal present valueAmount to be investedNet present value5.

Solution a: Computation of Annual Net Cash Inflow Particulars Amount Revenues (300*3200*$475)…

Net Present Value Method for a Service Company Opulence Corporation has recently placed into service some of the largest cruise ships in the world. One of these ships, the Bellwether, can hold up to 3,200 passengers and it can cost $640 million to build. Assume the following additional information: • There will be 300 cruise days per year operated at a full capacity of 3,200 passengers. • The variable expenses per passenger are estimated to be $95 per cruise day. • The revenue per passenger is expected to be $475 per cruise day. • The fixed expenses for running the ship, other than depreciation, are estimated to be $94,848,000 per year. • The ship has a service life of 10 years, with a residual value of $100,000,000 at the end of 10 years Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0.943 0.909 0.893 0.870 0.833 0.890 0.826 0.797 0.756 0.694 2.

Net Present Value Method for a Service Company Opulence Corporation has recently placed into service some of the largest cruise ships in the world. One of these ships, the Bellwether, can hold up to 3,200 passengers and it can cost $640 million to build. Assume the following additional information: • There will be 300 cruise days per year operated at a full capacity of 3,200 passengers. • The variable expenses per passenger are estimated to be $95 per cruise day. • The revenue per passenger is expected to be $475 per cruise day. • The fixed expenses for running the ship, other than depreciation, are estimated to be $94,848,000 per year. • The ship has a service life of 10 years, with a residual value of $100,000,000 at the end of 10 years Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0.943 0.909 0.893 0.870 0.833 0.890 0.826 0.797 0.756 0.694 2.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 11E

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