OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost $500 million and would operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $70 million (at the end of each year) and its cost of capital is 12%.
Show your calculations and answer the following questions:
- Calculate the NPV of the project if the cost of capital is 12%
-Is the purchase an attractive investment?
- Would your answer change if the cost of capital was 13%?
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