Net Present Value Method for a Service Company Opulence Corporation has recently placed into service some of the largest cruise ships in the world. One of these ships, the Bellwether, can hold up to 3,000 passengers and it can cost $600 million to build. Assume the following additional information: There will be 300 cruise days per year operated at a full capacity of 3,000 passengers. The variable expenses per passenger are estimated to be $75 per cruise day. The revenue per passenger is expected to be $375 per cruise day. The fixed expenses for running the ship, other than depreciation, are estimated to be $70,200,000 per year. The ship has a service life of 10 years, with a residual value of $100,000,000 at the end of 10 years. **TABLES ATTACHED IN IMAGES A. Determine the annual net cash flow from operating the cruise ship. Revenues $ Variable expenses Fixed expenses (other than depreciation) Annual net cash flow $ b. Determine the net present value of this investment, assuming a 10% minimum rate of return. Use the present value tables provided above. If required, round to the nearest whole dollar. Present value of annual net cash flows $ Present value of residual value Total present value $ Amount to be invested Net present value $

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Net Present Value Method for a Service Company

Opulence Corporation has recently placed into service some of the largest cruise ships in the world. One of these ships, the Bellwether, can hold up to 3,000 passengers and it can cost $600 million to build. Assume the following additional information:

There will be 300 cruise days per year operated at a full capacity of 3,000 passengers.
The variable expenses per passenger are estimated to be $75 per cruise day.
The revenue per passenger is expected to be $375 per cruise day.
The fixed expenses for running the ship, other than depreciation, are estimated to be $70,200,000 per year.
The ship has a service life of 10 years, with a residual value of $100,000,000 at the end of 10 years.

**TABLES ATTACHED IN IMAGES

A. Determine the annual net cash flow from operating the cruise ship.

Revenues	$
Variable expenses
Fixed expenses (other than depreciation)
Annual net cash flow	$

b. Determine the net present value of this investment, assuming a 10% minimum rate of return. Use the present value tables provided above. If required, round to the nearest whole dollar.