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Halcyon Lines is considering the purchase of a new bulk carrier for $8.7 million. The forecasted...

Halcyon Lines is considering the purchase of a new bulk carrier for $8.7 million. The forecasted revenues are $5.9 million a year and operating costs are $4.9 million. A major refit costing $2.9 million will be required after both the fifth and tenth years. After 15 years, the ship is expected to be sold for scrap at $2.4 million. a.

A. What is the NPV if the opportunity cost of capital is 9%? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.) Net present value $ b. Halcyon could finance the ship by borrowing the entire investment at an interest rate of 4.5%. Will this borrowing opportunity affect your calculation of NPV?

Solutions

Expert Solution

The NPV of the investment opportunity is - $ 3 Million.

When the capital is entirely replaced by debt, the new cost of capital is 4.5%

So the NPV is -$ 1 Million.

Calculations

jeff jeffy answered 3 months ago
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