In: Finance
The following table shows the forecasted operating results for Halong Cruises, Inc., from the purchase of a new luxury yacht. The company has a cost of capital of 12%.
Year ($ million) | ||||||||||||||||||||
0 | 1 | 2 | 3 | 4 | ||||||||||||||||
Investment | –$ | 345 | ||||||||||||||||||
Operating cash flow | $ | 177 | $ | 225 | $ | 240 | $ | 255 | ||||||||||||
Working capital | $ | 78 | $ | 93 | $ | 98 | $ | 83 | $ | 0 | ||||||||||
Salvage cash flow | $ | 70 | ||||||||||||||||||
a. What are the cash flows in each year of operations?
Year 0:
Year 1:
Year 2:
Year 3:
Year 4:
b. What is the net present value of the new yacht?