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 $70 per cruise day. The revenue per passenger is expected to be $350 per cruise day. The fixed expenses for running the ship, other than depreciation, are estimated to be $50,232,000 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 1 Variable expenses fill in the blank 2 Fixed expenses fill in the blank 3 Annual net cash flow $fill in the blank 4 b. Determine the net present value of this investment, assuming a 10% 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 5 Present value of residual value fill in the blank 6 Total present value $fill in the blank 7 Amount to be invested fill in the blank 8 Net present value $fill in the blank 9
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 $70 per cruise day. The revenue per passenger is expected to be $350 per cruise day. The fixed expenses for running the ship, other than depreciation, are estimated to be $50,232,000 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 1 Variable expenses fill in the blank 2 Fixed expenses fill in the blank 3 Annual net cash flow $fill in the blank 4 b. Determine the net present value of this investment, assuming a 10% 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 5 Present value of residual value fill in the blank 6 Total present value $fill in the blank 7 Amount to be invested fill in the blank 8 Net present value $fill in the blank 9
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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Question
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 $70 per cruise day.
- The revenue per passenger is expected to be $350 per cruise day.
- The fixed expenses for running the ship, other than
depreciation , are estimated to be $50,232,000 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.
|
|
a. Determine the annual net cash flow from operating the cruise ship.
Revenues | $fill in the blank 1 |
Variable expenses | fill in the blank 2 |
Fixed expenses | fill in the blank 3 |
Annual net cash flow | $fill in the blank 4 |
b. Determine the net present value of this investment, assuming a 10% minimum
Present value of annual net |
$fill in the blank 5 |
Present value of residual value | fill in the blank 6 |
Total present value | $fill in the blank 7 |
Amount to be invested | fill in the blank 8 |
Net present value | $fill in the blank 9 |
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