Opulence Corporation operates several large cruise ships. One of
these ships, the Bellwether, can hold up to 2,800
passengers and cost $560 million to build. Assume the following
additional information:
- There will be 300 cruise days per year operated at a full
capacity of 2,800 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 $65,520,000 per year.
- The ship has a service life of 10 years, with a residual value
of $90,000,000 at the end of 10 years.
| Present Value of $1 at Compound
Interest |
| Year |
6% |
10% |
12% |
15% |
20% |
| 1 |
0.943 |
0.909 |
0.893 |
0.870 |
0.833 |
| 2 |
0.890 |
0.826 |
0.797 |
0.756 |
0.694 |
| 3 |
0.840 |
0.751 |
0.712 |
0.658 |
0.579 |
| 4 |
0.792 |
0.683 |
0.636 |
0.572 |
0.482 |
| 5 |
0.747 |
0.621 |
0.567 |
0.497 |
0.402 |
| 6 |
0.705 |
0.564 |
0.507 |
0.432 |
0.335 |
| 7 |
0.665 |
0.513 |
0.452 |
0.376 |
0.279 |
| 8 |
0.627 |
0.467 |
0.404 |
0.327 |
0.233 |
| 9 |
0.592 |
0.424 |
0.361 |
0.284 |
0.194 |
| 10 |
0.558 |
0.386 |
0.322 |
0.247 |
0.162 |
|
| Present Value of an Annuity of $1 at
Compound Interest |
| Year |
6% |
10% |
12% |
15% |
20% |
| 1 |
0.943 |
0.909 |
0.893 |
0.870 |
0.833 |
| 2 |
1.833 |
1.736 |
1.690 |
1.626 |
1.528 |
| 3 |
2.673 |
2.487 |
2.402 |
2.283 |
2.106 |
| 4 |
3.465 |
3.170 |
3.037 |
2.855 |
2.589 |
| 5 |
4.212 |
3.791 |
3.605 |
3.352 |
2.991 |
| 6 |
4.917 |
4.355 |
4.111 |
3.784 |
3.326 |
| 7 |
5.582 |
4.868 |
4.564 |
4.160 |
3.605 |
| 8 |
6.210 |
5.335 |
4.968 |
4.487 |
3.837 |
| 9 |
6.802 |
5.759 |
5.328 |
4.772 |
4.031 |
| 10 |
7.360 |
6.145 |
5.650 |
5.019 |
4.192 |
|
a. Determine the annual net cash flow from
operating the cruise ship.
| Revenues |
$ |
| Variable expenses |
|
| Fixed expenses |
|
| Annual net cash flow |
$ |
b. Determine the net present value of this
investment, assuming a 6% 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 |
$ |