OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship operating the ship to be $68.9 million and its cost of capital is 11.6% a. Prepare an NPV profile of the purchase. b. Identify the IRR on the graph. c. Should OpenSeas go ahead with the purchase? d. How far off could OpenSeas's cost of capital estimate be before your pu a. Prepare an NPV profile of the purchase.

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost $500 million and will operate for 20 years. OpenSeas expects annual cash flows from
operating the ship to be $68.9 million and its cost of capital is 11.6%.
a. Prepare an NPV profile of the purchase.
b. Identify the IRR on the graph.
c. Should OpenSeas go ahead with the purchase?
d. How far off could OpenSeas's cost of capital estimate be before your purchase decision would change?
ame
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.)
Transcribed Image Text:OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost $500 million and will operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $68.9 million and its cost of capital is 11.6%. a. Prepare an NPV profile of the purchase. b. Identify the IRR on the graph. c. Should OpenSeas go ahead with the purchase? d. How far off could OpenSeas's cost of capital estimate be before your purchase decision would change? ame 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.)
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