?OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost $501...

80.2K

Verified Solution

Question

Finance

?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 capitalis 12.0%
a. Prepare an NPV profile of the purchase using discount ratesof 2.0%?, 11.5% and 17.0%.
The NPV for a discount rates of 2.0% is how many million?
The NPV for a discount rates of 11.5% is how many million?
The NPV for a discount rates of 17.0% is how many million?
b. Identify the IRR on a graph.
The approximate IRR from the graph is what percent?
c. Is the purchase attractive based on these? estimates? ShouldOpenSeas go ahead with the? purchase?
Yes/no, because at a 12.0% discount rate, the NPV ispositive/negative.
d. How far off could? OpenSeas' cost of capital estimate bebefore your purchase decision would? change? ?(NOTE: Subtract thediscount rate from the actual IRR. Use Excel to compute the actual?IRR.)
The cost of capital estimate can be off by what percent?

Answer & Explanation Solved by verified expert

4.4 Ratings (776 Votes)

Yearcash flowpresent value of cash flow cash flow1rn r 2present value of cash flow cash flow1rn r 115present value of cash flow cash flow1rn r 12present value of cash flow cash flow1rn r See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

?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 capitalis 12.0%a. Prepare an NPV profile of the purchase using discount ratesof 2.0%?, 11.5% and 17.0%.The NPV for a discount rates of 2.0% is how many million?The NPV for a discount rates of 11.5% is how many million?The NPV for a discount rates of 17.0% is how many million?b. Identify the IRR on a graph.The approximate IRR from the graph is what percent?c. Is the purchase attractive based on these? estimates? ShouldOpenSeas go ahead with the? purchase?Yes/no, because at a 12.0% discount rate, the NPV ispositive/negative.d. How far off could? OpenSeas' cost of capital estimate bebefore your purchase decision would? change? ?(NOTE: Subtract thediscount rate from the actual IRR. Use Excel to compute the actual?IRR.)The cost of capital estimate can be off by what percent?