You are the financial manager in the international transportation company. The board of directors decided to buy a ship which produces year-end annual cash flows of $150,000 the first year, $200,000 the second year, $325,000 the third year, $418,000 the fourth year and 500,823 the fifth year.Assuming a weighted average cost of capital of 11 percent, what is the value of this ship using the net present value (NPV) approach? If the cost of ship is 1,007,500 for the company, calculate the net present value and decide on buying this ship for your company or not (Assume a weighted average cost of capital of 14 percent)?

Present value of cash flow give future value of cash flow today it can be calculated using discount…

Answered: You are the financial manager in the…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 8P

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You are the financial manager in the international transportation company. The board of directors decided to buy a ship which produces year-end annual cash flows of $150,000 the first year, $200,000 the second year, $325,000 the third year, $418,000 the fourth year and 500,823 the fifth year.

Assuming a weighted average cost of capital of 11 percent, what is the value of this ship using the net present value (NPV) approach?
If the cost of ship is 1,007,500 for the company, calculate the net present value and decide on buying this ship for your company or not (Assume a weighted average cost of capital of 14 percent)?

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