Question
In: Finance
OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost $500...
OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost
$500 million, but would operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be
$70.0 million (at the end of each year) and its cost of capital is 12.0%
a. Prepare an NPV profile of the purchase using discount rates of 2.0%, 11.5% and 17.0%.
b. Identify the IRR on a graph.
Solutions
Expert Solution
a]
NPV = sum of present values of all cash flows
present value of each cash flow = cash flow / (1 + cost of capital)n
where n = number of years after which the cash flow occurs
b]
IRR is the cost of capital where the NPV is zero, i.e. where the NPV profile intersects the x-axis.
IRR is approximately 13%
jeff jeffy answered 2 years agoRelated Solutions
OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost $500...
OpenSeas, Inc. is evaluating the purchase of a new cruise ship.
The ship would cost $500 million and would operate for 20 years.
OpenSeas expects annual cash flows from operating the ship to be
$70 million (at the end of each year) and its cost of capital is
12%.
Show your calculations and answer the following questions
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OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost $500...
OpenSeas, Inc. is evaluating the purchase of a new cruise ship.
The ship would cost $500 million and would operate for 20 years.
OpenSeas expects annual cash flows from operating the ship to be
$70 million (at the end of each year) and its cost of capital is
12%.
Show your calculations and answer the following questions
Calculate the NPV of the project if the cost of capital is
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OpenSeas, Inc., is evaluating the purchase of a new cruise ship. The ship will cost $500...
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OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost...
OpenSeas, Inc. is evaluating the purchase of a new cruise ship.
The ship will cost
$ 500$500
million, and will operate for
2020
years. OpenSeas expects annual cash flows from operating the
ship to be
$ 70.0$70.0
million and its cost of capital is
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OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost $501...
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OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost $501...
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OpenSeas expects annual cash flows from operating the ship to be
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of 2.0%, 11.5% and 17.0%.
The NPV for a discount rates of 2.0% is how many million?
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