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 1 year 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
7.1) Calculate the NPV of the project if the cost of capital is
12%
7.2) Is the purchase an attractive investment?
7.3) Would...
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
12%
Calculate the NPV of the project if the cost of...
OpenSeas, Inc., is evaluating the purchase of a new cruise ship. The ship will cost $500...
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
$70 million and its cost of capital is 12%.
a. Prepare a NPV profile of the purchase. Do from rate 0% to 20%
(please show me the formula you use, I have been trying to figure
it out and cant)
b. Identify the IRR on the...
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 $ 495 million and will operate for 20 years.
OpenSeas expects annual cash flows from operating the ship to be $
69.8 million and its cost of capital is 12.1 %. 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...
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
12.0 %12.0%.
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...
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 $ 495 million, and will operate for 20 years.
OpenSeas expects annual cash flows from operating the ship to be $
70.7 million and its cost of capital is 12.1 %. 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...
OpenSeas, Inc., is evaluating the purchase of a new cruise ship. The ship would cost $400...
OpenSeas, Inc., is evaluating the purchase of a new cruise ship.
The ship would cost $400 million today. OpenSeas expects annual
cash flows from the new ship to be $70 million and these cash flows
will last forever. The cost of capital is 16%.
What is the IRR of the new cruise ship? Please make your answer
in the unit of percent.
______%
Following question 4, suppose the company has a desired payback
period of 5 years.
Which statement is...
OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost $505...
OpenSeas, Inc. is evaluating the purchase of a new cruise ship.
The ship would cost $505 ?million, but would operate for 20 years.
OpenSeas expects annual cash flows from operating the ship to be
$70.1 million? (at the end of each? year) and its cost of capital
is 11.9%
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. c. Is
the purchase attractive based on these?...
OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost $501...
OpenSeas, Inc. is evaluating the purchase of a new cruise ship.
The ship would cost
$501
million, but would operate for
20
years. OpenSeas expects annual cash flows from operating the
ship to be
$69.5
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.
c. Is the purchase attractive based on these...
OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost $501...
OpenSeas, Inc. is evaluating the purchase of a new cruise ship.
The ship would cost $501 million, but would operate for 20 years.
OpenSeas expects annual cash flows from operating the ship to be
$69.7 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%.
The NPV for a discount rates of 2.0% is how many million?
The NPV for...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Originality is a “must” in research. Therefore, use your own words when answering questions - DO...
- Explain the purpose and importance of the business plan 1 PAGE
- Your company (US-based organization) is expected to receive 4 million British pounds in nine months. You...
- 4 Neutron interactions within nuclear power systems. a) Explain with quantification the terms ‘thermal’ and ‘fast’...
- Consider the market for minivans. For each of the events listed below: → identify which of...
- A hedge fund manager shorted 800 shares of XYZ stock at $65/share and she plans to...
- . What are common factors across psychotherapies? What psychotherapies are typically used for what disorders
ADVERTISEMENT