OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost 498 million, and will operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $71.4 million and its cost of capital is 12.1%
a. Prepare an NPV profile of the purchase.
The NPV for a discount rate of 2% is ______ Million
The NPV for a discount rate of 11.5% is _____million
The NPV for a discount rate of 17% is ______million
b. Identify the IRR on the graph.
The approximate IRR from the graph is _____%
c. Should OpenSeas proceed with the purchase?
A. Yes, because at a discount rate of12.1%, the NPV is negative.
B. No, because at a discount rate of12.1%, the NPV is positive.
C. No, because at a discount rate of 12.1%, the NPV is negative.
D. Yes, because at a discount rate of 12.1%, the NPV is positive.
d. How far off could OpenSeas' cost of capital estimate be before your purchase decision would change?
The cost of capital estimate can be off by ____%