OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost $498 million and will operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $70.1 million and its cost of capital is 12.0%. a. Prepare an NPV profile of the purchase. b. Identify the IRR on the graph. c. Should OpenSeas go ahead with the purchase? d. How far off could OpenSeas's cost of capital estimate be before your purchase decision would change? a. Prepare an NPV profile of the purchase. To plot the NPV profile, we compute the NPV of the project for various discount rates and plot the curve. The NPV for a discount rate of 2.0% is $ million. (Round to one decimal place.)
OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost $498 million and will operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $70.1 million and its cost of capital is 12.0%. a. Prepare an NPV profile of the purchase. b. Identify the IRR on the graph. c. Should OpenSeas go ahead with the purchase? d. How far off could OpenSeas's cost of capital estimate be before your purchase decision would change? a. Prepare an NPV profile of the purchase. To plot the NPV profile, we compute the NPV of the project for various discount rates and plot the curve. The NPV for a discount rate of 2.0% is $ million. (Round to one decimal place.)
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 4P
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OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost $498
million and will operate for 20 years. OpenSeas expects annual cash flows from operating
the ship to be $70.1 million and its cost of capital is 12.0%.
a. Prepare an NPV profile of the purchase.
b. Identify the IRR on the graph.
c. Should OpenSeas go ahead with the purchase?
d. How far off could OpenSeas's cost of capital estimate be before your purchase
decision would change?
COL
a. Prepare an NPV profile of the purchase.
To plot the NPV profile, we compute the NPV of the project for various discount rates and
plot the curve.
The NPV for a discount rate of 2.0% is
milion. (Round to one decimal place.)
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