Marlin Charters uses a charter boat that they purchased 15 years ago for $500,000. It had an expected life of 20 years and was being depreciated straight-line over its 20-year life. The owners believe that they are losing business to charter businesses with nicer, newer boats. The existing boat could currently be sold for $250,000, but would have no estimated value in five years. They are considering the purchase of a $1,000,000 Viking 80 boat., which would allow Marlin Charters be to charge higher rates in addition to increasing their bookings. The boat is new and would require in investment of $200,000 in electronics and interior finishings designed for fishermen/fisherwomen. Fortunately, the IRS would allow them to depreciate the boat straight-line over five years to a zero salvage value. Marlin Charters estimates an increase in annual revenue of $350,000 and an increase in expenses of $125,000 over the next five years. The owners believe they could sell the Viking for $800,000 in five years. Marlin Charters has a tax rate of 25% and a required rate of return of 15%. What is the NPV of the proposed purchase? Do not enter a "$" in your answer.
Marlin Charters uses a charter boat that they purchased 15 years ago for $500,000. It had an expected life of 20 years and was being depreciated straight-line over its 20-year life. The owners believe that they are losing business to charter businesses with nicer, newer boats. The existing boat could currently be sold for $250,000, but would have no estimated value in five years. They are considering the purchase of a $1,000,000 Viking 80 boat., which would allow Marlin Charters be to charge higher rates in addition to increasing their bookings. The boat is new and would require in investment of $200,000 in electronics and interior finishings designed for fishermen/fisherwomen. Fortunately, the IRS would allow them to depreciate the boat straight-line over five years to a zero salvage value. Marlin Charters estimates an increase in annual revenue of $350,000 and an increase in expenses of $125,000 over the next five years. The owners believe they could sell the Viking for $800,000 in five years. Marlin Charters has a tax rate of 25% and a required rate of return of 15%. What is the NPV of the proposed purchase? Do not enter a "$" in your answer.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
A 37.
Subject:- finance
Transcribed Image Text:Marlin Charters uses a charter boat that they purchased 15 years ago for $500,000. It had an expected life of 20 years and
was being depreciated straight-line over its 20-year life. The owners believe that they are losing business to charter
businesses with nicer, newer boats. The existing boat could currently be sold for $250,000, but would have no estimated
value in five years. They are considering the purchase of a $1,000,000 Viking 80 boat, which would allow Marlin Charters be
to charge higher rates in addition to increasing their bookings. The boat is new and would require in investment of $200,000
in electronics and interior finishings designed for fishermen/fisherwomen. Fortunately, the IRS would allow them to
depreciate the boat straight-line over five years to a zero salvage value. Marlin Charters estimates an increase in annual
revenue of $350,000 and an increase in expenses of $125,000 over the next five years. The owners believe they could sell the
Viking for $800,000 in five years. Marlin Charters has a tax rate of 25% and a required rate of return of 15%. What is the
NPV of the proposed purchase? Do not enter a "$" in your answer.
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