OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost $499 million, and will operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $68.6 million and its cost of capital is 11.5%. a. Prepare an NPV profile of the purchase. b. Identify the IRR on the graph. c. Should OpenSeas proceed with the purchase? d. How far off could OpenSeas' cost 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.) The NPV for a discount rate of 11.5% is $ million. (Round to one decimal place.) The NPV for a discount rate of 17.0% is $ million. (Round to one decimal place.) The NPV profile is: NPV Profile of Cruise Ship Investment 1,000-
OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost $499 million, and will operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $68.6 million and its cost of capital is 11.5%. a. Prepare an NPV profile of the purchase. b. Identify the IRR on the graph. c. Should OpenSeas proceed with the purchase? d. How far off could OpenSeas' cost 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.) The NPV for a discount rate of 11.5% is $ million. (Round to one decimal place.) The NPV for a discount rate of 17.0% is $ million. (Round to one decimal place.) The NPV profile is: NPV Profile of Cruise Ship Investment 1,000-
Chapter18: The Management Of Accounts Receivable And Inventories
Section: Chapter Questions
Problem 3P
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