In: Finance
Company A is assessing the purchase of a new ship. The ship will
cost $497 million...
Company A is assessing the purchase of a new ship. The ship will
cost $497 million and will operate for 20 years. The company
estimates annual cash flows from operating the ship to be $71.1
million, and its cost of capital is 12.5%.
- Calculate the NPV and IRR of the purchase.
- Prepare an NPV profile of the purchase and highlight the
IRR.
- Should the company proceed with the purchase?
- How far off could the firm’s cost of capital estimate be before
your purchase decision would change?