OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost $503.4 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 11.90%. a. Prepare an NPV profile of the purchase. b. Identify the IRR on the graph. c. Should OpenSeasOpenSeas proceed with the purchase? d. How far off could OpenSeasOpenSeas' cost of capital estimate be before your purchase decision would change?
OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost $503.4 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 11.90%. a. Prepare an NPV profile of the purchase. b. Identify the IRR on the graph. c. Should OpenSeasOpenSeas proceed with the purchase? d. How far off could OpenSeasOpenSeas' cost of capital estimate be before your purchase decision would change?
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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Transcribed Image Text:OpenSeas, Inc. is evaluating the purchase of a new
cruise ship. The ship will cost $503.4 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 11.90%.
a. Prepare an NPV profile of the purchase.
b. Identify the IRR on the graph.
c. Should OpenSeasOpenSeas proceed with the
purchase?
d. How far off could OpenSeasOpenSeas' cost of
capital estimate be before your purchase decision
would change?
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