3. OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost $499 ​million, and will operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be...



3. OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost $499 ​million, and will operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $68.4 million and its cost of capital is 11.6%.





Prepare an NPV profile of the purchase. To plot the NPV profile we compute the NPV of the project for various discount rates and plot the curve.

The NPV for a discount rate of 2.0% is $______________________million. ​

(Round to one decimal​ place.)

The NPV for a discount rate of 11.5% is $_____________________million. ​

(Round to one decimal​ place.)

The NPV for a discount rate of 17.0% is $_____________________million. ​

(Round to one decimal​ place.)

The NPV profile​ is:




Graph portion from picture.

Identify the IRR on the graph.

The approximate IRR from the graph is_______________​%.
​(Round your answer to one decimal​ place.)


Should OpenSeas go ahead with the​ purchase?

​(Select the best choice​ below.)


A.​ No, because at a discount rate of 11.6%​, the NPV is positive.



B. No, because at a discount rate of 11.6%​,the NPV is negative.



C. Yes, because at a discount rate of 11.6%​, the NPV is negative.




D. ​Yes, because at a discount rate of 11.6%​, the NPV is positive.





How far off could​ OpenSeas' cost of capital estimate be before your purchase decision would​ change?
​(​Note: Subtract the discount rate from the approximate​ IRR.)


The cost of capital estimate can be off by ______________​%.
​(Round to one decimal​ place.)











Extracted text:
Jun 06, 2022
SOLUTION.PDF
SOLUTION.PDF

Get Answer To This Question

Related Questions & Answers

More Questions »

Submit New Assignment

Copy and Paste Your Assignment Here
Have files?