ACCOUNTING,CHAP.1-13
26th Edition
ISBN: 9781305088412
Author: WARREN
Publisher: CENGAGE L
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Question
Chapter 26, Problem 26.11EX
(a)
To determine
Cash flow:
Cash flow is the monetary consideration (return or income) received by the business for its long-term capital investment.
The annual net cash flow from operating the cruise ship.
(b)
To determine
Net present value method is the method which is used to compare the initial
To calculate: The net present value of the investment.
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0.943
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0.890
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Opulence Corporation has recently placed into service some of the largest cruise ships in the world. One of these ships, the Bellwether, can hold up to 3,000 passengers and it can cost $600 million to build. Assume the following additional information:
There will be 300 cruise days per year operated at a full capacity of 3,000 passengers.
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The revenue per passenger is expected to be $375 per cruise day.
The fixed expenses for running the ship, other than depreciation, are estimated to be $70,200,000 per year.
The ship has a service life of 10 years, with a residual value of $100,000,000 at the end of 10 years.
**TABLES ATTACHED IN IMAGES
A. Determine the annual net cash flow from operating the cruise ship.
Revenues
$
Variable expenses
Fixed expenses (other than depreciation)
Annual net cash flow
$
b. Determine the net present value of this…
Net Present Value Method
Opulence Corporation operates several large cruise ships. One of these ships, the Bellwether, can hold up to 2,300 passengers and cost $460 million to build. Assume the following additional information:
There will be 300 cruise days per year operated at a full capacity of 2,300 passengers.
The variable expenses per passenger are estimated to be $70 per cruise day.
The revenue per passenger is expected to be $350 per cruise day.
The fixed expenses for running the ship, other than depreciation, are estimated to be $50,232,000 per year.
The ship has a service life of 10 years, with a residual value of $70,000,000 at the end of 10 years.
Present Value of $1 at Compound Interest
Year
6%
10%
12%
15%
20%
1
0.943
0.909
0.893
0.870
0.833
2
0.890
0.826
0.797
0.756
0.694
3
0.840
0.751
0.712
0.658
0.579
4
0.792
0.683
0.636
0.572
0.482
5
0.747
0.621
0.567
0.497
0.402
6
0.705
0.564
0.507
0.432
0.335
7
0.665
0.513
0.452
0.376
0.279
8
0.627
0.467…
Chapter 26 Solutions
ACCOUNTING,CHAP.1-13
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