OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost $495.1 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 11.68%. a. Prepare an NPV profile of the purchase. b. Identify the IRR on the graph. c. Should OpenSeas proceed with the purchase? d. How far off could OpenSeas' cost of capital estimate be before your purchase decision would change? 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 2.00% is $☐ million. (Round to two decimal places.)
OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost $495.1 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 11.68%. a. Prepare an NPV profile of the purchase. b. Identify the IRR on the graph. c. Should OpenSeas proceed with the purchase? d. How far off could OpenSeas' cost of capital estimate be before your purchase decision would change? 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 2.00% is $☐ million. (Round to two decimal places.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost $495.1 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
11.68%.
a. Prepare an NPV profile of the purchase.
b. Identify the IRR on the graph.
c. Should OpenSeas proceed with the purchase?
d. How far off could OpenSeas' cost of capital estimate be before your purchase decision would change?
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 2.00% is $☐ million. (Round to two decimal places.)
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