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OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost $502 million, but would operate for 20 years. OpenSeas expects annual cash flows rom operating the ship to be $70.3 million (at the end of each year) and its cost of capital is 12.1% 1. Prepare an NPV profile of the purchase using discountrates of 2.0%, 11.5% and 17.0%. p. Identify the IRR (to the nearest 1%) on a graph. . Is the purchase attractive based on these estimates? H. How far off could OpenSeas? cost of capital be (to the nearest 1%) before your purchase decision would change? Note: Subtract the discount rate from the actual IRR. Use Excel to compute the actual IRR. . Prepare an NPV profile of the purchase using discount rates of 2.0%, 11.5% and 17.0%: The NPV for a discount rates of 2.0% is $ million. (Round to the nearest integer.)

OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost $502 million, but would operate for 20 years. OpenSeas expects annual cash flows rom operating the ship to be $70.3 million (at the end of each year) and its cost of capital is 12.1% 1. Prepare an NPV profile of the purchase using discountrates of 2.0%, 11.5% and 17.0%. p. Identify the IRR (to the nearest 1%) on a graph. . Is the purchase attractive based on these estimates? H. How far off could OpenSeas? cost of capital be (to the nearest 1%) before your purchase decision would change? Note: Subtract the discount rate from the actual IRR. Use Excel to compute the actual IRR. . Prepare an NPV profile of the purchase using discount rates of 2.0%, 11.5% and 17.0%: The NPV for a discount rates of 2.0% is $ million. (Round to the nearest integer.)

Financial Management: Theory & Practice
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter26: Real Options
Section: Chapter Questions
Problem 3P: Wansley Lumber is considering the purchase of a paper company, which would require an initial...
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OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost $502 million, but would operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $70.3 million (at the end of each year) and its cost of capital is 12.1% a. Prepare an NPV profile of the purchase using discountrates of 2.0%, 11.5% and 17.0%. b. Identify the IRR (to the nearest 1%) on a graph. c. Is the purchase attractive based on these estimates? d. How far off could OpenSeas? cost of capital be (to the nearest 1%) before your purchase decision would change? Note: Subtract the discount rate from the actual IRR. Use Excel to compute the actual IRR. a. Prepare an NPV profile of the purchase using discount rates 2.0%, 11.5% and 17.0%. The NPV for a discount rates of 2.0% is $ million. (Round to the nearest integer.)
Transcribed Image Text:OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost $502 million, but would operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $70.3 million (at the end of each year) and its cost of capital is 12.1% a. Prepare an NPV profile of the purchase using discountrates of 2.0%, 11.5% and 17.0%. b. Identify the IRR (to the nearest 1%) on a graph. c. Is the purchase attractive based on these estimates? d. How far off could OpenSeas? cost of capital be (to the nearest 1%) before your purchase decision would change? Note: Subtract the discount rate from the actual IRR. Use Excel to compute the actual IRR. a. Prepare an NPV profile of the purchase using discount rates 2.0%, 11.5% and 17.0%. The NPV for a discount rates of 2.0% is $ million. (Round to the nearest integer.)
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