Problem 2-16 Present values and opportunity cost of capital Halcyon Lines is considering the purchase of a new bulk carrier for $6.9 million. The forecasted revenues are $6.7 million a year and operating costs are $5.7 million. A major refit costing $3.7 million will be required after both the fifth and tenth years. After 15 years, the ship is expected to be sold for scrap at $3.2 million. a. What is the NPV if the opportunity cost of capital is 9% ? (Enter your answer in dollars, not millions of dollars. Negative amount should be indicated by a minus sign. Do not round Intermediate calculations. Round your answer to the nearest whole dollar amount.) Net present value b. Halcyon could finance the ship by borrowing the entire Investment at an interest rate of 4.5%. Will this borrowing opportunity affect your calculation of NPV? O Yes No
Problem 2-16 Present values and opportunity cost of capital Halcyon Lines is considering the purchase of a new bulk carrier for $6.9 million. The forecasted revenues are $6.7 million a year and operating costs are $5.7 million. A major refit costing $3.7 million will be required after both the fifth and tenth years. After 15 years, the ship is expected to be sold for scrap at $3.2 million. a. What is the NPV if the opportunity cost of capital is 9% ? (Enter your answer in dollars, not millions of dollars. Negative amount should be indicated by a minus sign. Do not round Intermediate calculations. Round your answer to the nearest whole dollar amount.) Net present value b. Halcyon could finance the ship by borrowing the entire Investment at an interest rate of 4.5%. Will this borrowing opportunity affect your calculation of NPV? O Yes No
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:Problem 2-16 Present values and opportunity cost of capital
Halcyon Lines is considering the purchase of a new bulk carrier for $6.9 million. The forecasted revenues are $6.7 million a
year and operating costs are $5.7 million. A major refit costing $3.7 million will be required after both the fifth and tenth years.
After 15 years, the ship is expected to be sold for scrap at $3.2 million.
a. What is the NPV If the opportunity cost of capital is 9% ? (Enter your answer in dollars, not millions of dollars. Negative
amount should be Indicated by a minus sign. Do not round Intermediate calculations. Round your answer to the nearest
whole dollar amount.)
Net present value
b. Halcyon could finance the ship by borrowing the entire Investment at an interest rate of 4.5%. Will this borrowing
opportunity affect your calculation of NPV?
Yes
O NO
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