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OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost $505 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 discount rates 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 of 2.0%, 11.5% and 17.0%. The NPV for a discount rates of 2.0% is $645 million. (Round to the nearest integer.) The NPV for a discount rates of 11.5% is $37 million. (Round to the nearest integer.) The NPV for a discount rates of 17.0% is $ - 109 million. (Round to the nearest integer.)

OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost $505 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 discount rates 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 of 2.0%, 11.5% and 17.0%. The NPV for a discount rates of 2.0% is $645 million. (Round to the nearest integer.) The NPV for a discount rates of 11.5% is $37 million. (Round to the nearest integer.) The NPV for a discount rates of 17.0% is $ - 109 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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I’m just trying to verify the answers. (I’m not sure if I’m supposed to write the entire number or just the numbers reflecting those in the millions.)
OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost $505 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 discount rates 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. C... a. 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 $ 645 million. (Round to the nearest integer.) The NPV for a discount rates of 11.5% is $37 million. (Round to the nearest integer.) The NPV for a discount rates of 17.0% is $ - 109 million. (Round to the nearest integer.)
Transcribed Image Text:OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost $505 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 discount rates 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. C... a. 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 $ 645 million. (Round to the nearest integer.) The NPV for a discount rates of 11.5% is $37 million. (Round to the nearest integer.) The NPV for a discount rates of 17.0% is $ - 109 million. (Round to the nearest integer.)
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