Net Present Value Method Opulence Corporation operates several large cruise ships. One of these ships, the Bellwether, can hold up to 2,300 passengers and cost $460 million to build. Assume the following additional information: There will be 300 cruise days per year operated at a full capacity of 2,300 passengers. The variable expenses per passenger are estimated to be $85 per cruise day. The revenue per passenger is expected to be $425 per cruise day. The fixed expenses for running the ship, other than depreciation, are estimated to be $60,996,000 per year. The ship has a service life of 10 years, with a residual value of $70,000,000 at the end of 10 years. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.352 2.991 6 4.917 4.355 4.111 3.784 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 a. Determine the annual net cash flow from operating the cruise ship. Revenues $fill in the blank Variable expenses fill in the blank Fixed expenses fill in the blank Annual net cash flow $fill in the blank b. Determine the net present value of this investment, assuming a 6% minimum rate of return. Use the present value tables provided above. If required, round to the nearest whole dollar. Present value of annual net cash flows $fill in the blank Present value of residual value fill in the blank Total present value $fill in the blank Less amount to be invested fill in the blank Net present value $fill in the blank

Net Present Value Method Opulence Corporation operates several large cruise ships. One of these ships, the Bellwether, can hold up to 2,300 passengers and cost $460 million to build. Assume the following additional information: There will be 300 cruise days per year operated at a full capacity of 2,300 passengers. The variable expenses per passenger are estimated to be $85 per cruise day. The revenue per passenger is expected to be $425 per cruise day. The fixed expenses for running the ship, other than depreciation, are estimated to be $60,996,000 per year. The ship has a service life of 10 years, with a residual value of $70,000,000 at the end of 10 years. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.352 2.991 6 4.917 4.355 4.111 3.784 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 a. Determine the annual net cash flow from operating the cruise ship. Revenues $fill in the blank Variable expenses fill in the blank Fixed expenses fill in the blank Annual net cash flow $fill in the blank b. Determine the net present value of this investment, assuming a 6% minimum rate of return. Use the present value tables provided above. If required, round to the nearest whole dollar. Present value of annual net cash flows $fill in the blank Present value of residual value fill in the blank Total present value $fill in the blank Less amount to be invested fill in the blank Net present value $fill in the blank

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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Net Present Value Method

Opulence Corporation operates several large cruise ships. One of these ships, the Bellwether, can hold up to 2,300 passengers and cost $460 million to build. Assume the following additional information:

There will be 300 cruise days per year operated at a full capacity of 2,300 passengers.
The variable expenses per passenger are estimated to be $85 per cruise day.
The revenue per passenger is expected to be $425 per cruise day.
The fixed expenses for running the ship, other than depreciation, are estimated to be $60,996,000 per year.
The ship has a service life of 10 years, with a residual value of $70,000,000 at the end of 10 years.

Present Value of $1 at Compound Interest
Year	6%	10%	12%	15%	20%
1	0.943	0.909	0.893	0.870	0.833
2	0.890	0.826	0.797	0.756	0.694
3	0.840	0.751	0.712	0.658	0.579
4	0.792	0.683	0.636	0.572	0.482
5	0.747	0.621	0.567	0.497	0.402
6	0.705	0.564	0.507	0.432	0.335
7	0.665	0.513	0.452	0.376	0.279
8	0.627	0.467	0.404	0.327	0.233
9	0.592	0.424	0.361	0.284	0.194
10	0.558	0.386	0.322	0.247	0.162

Present Value of an Annuity of $1 at Compound Interest
Year	6%	10%	12%	15%	20%
1	0.943	0.909	0.893	0.870	0.833
2	1.833	1.736	1.690	1.626	1.528
3	2.673	2.487	2.402	2.283	2.106
4	3.465	3.170	3.037	2.855	2.589
5	4.212	3.791	3.605	3.352	2.991
6	4.917	4.355	4.111	3.784	3.326
7	5.582	4.868	4.564	4.160	3.605
8	6.210	5.335	4.968	4.487	3.837
9	6.802	5.759	5.328	4.772	4.031
10	7.360	6.145	5.650	5.019	4.192

a. Determine the annual net cash flow from operating the cruise ship.

Revenues	$fill in the blank
Variable expenses	fill in the blank
Fixed expenses	fill in the blank
Annual net cash flow	$fill in the blank

b. Determine the net present value of this investment, assuming a 6% minimum rate of return. Use the present value tables provided above. If required, round to the nearest whole dollar.

Present value of annual net cash flows	$fill in the blank
Present value of residual value	fill in the blank
Total present value	$fill in the blank
Less amount to be invested	fill in the blank
Net present value	$fill in the blank

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