Question

OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost $...

OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost $ 496 ​million, but would operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $ 69.6 million​ (at the end of each​ year) and its cost of capital is 12.2 %

a. Prepare an NPV profile of the purchase using discount rates of 2.0 %​,  11.5 % and 17.0 %.

b. Identify the IRR ​(to the nearest​ 1%) on a graph.

c. Is the purchase attractive based on these​ estimates?

d. How far off could​ OpenSeas? cost of capital be​ (to the nearest​ 1%) before your purchase decision would​ change?

Note​: Subtract the discount rate from the actual IRR. Use Excel to compute the actual IRR.

PLEASE SHOW ALL WORK FORMULAS AND STEPS

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost $500...
OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost $500 million, but would operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $70.0 million (at the end of each year) and its cost of capital is 12.0% a. Prepare an NPV profile of the purchase using discount rates of 2.0% ,11.5 % and 17.0%. b. Identify the IRR on a graph. c. Is the purchase attractive based on...
​OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost $499...
​OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost $499 ​million, but would operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $71.3 million​ (at the end of each​ year) and its cost of capital is 12.5% a. Prepare an NPV profile of the purchase using discount rates of 2.0%​, 11.5% and 17.0%. b. Identify the IRR on a graph. c. Is the purchase attractive based on these​...
​OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost $...
​OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost $ 501 ​million, and will operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $ 68.7 million and its cost of capital is 11.8 % . a. Prepare an NPV profile of the purchase. b. Identify the IRR on the graph. c. Should OpenSeas proceed with the​ purchase? d. How far off could​ OpenSeas' cost of capital estimate be...
OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost $500...
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...
​OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost \$500...
​OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost \$500 ​million, and will operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $70.0 million and its cost of capital is 12.0%.
The Jameson Corporation is evaluating a new feature ride for its amusement park at a cost...
The Jameson Corporation is evaluating a new feature ride for its amusement park at a cost 250,000 and will operate for 10 years. The Company expects annual cash flows from operating this new ride to be $35,000 and a cost of capital of 6%. a. Should the Jameson Corporation proceed with the purchases? What is the NPV and the IRR? b. How far off could the Jameson Corporation's cost of capital estimate be before the purchase decision changes?
Joanette, Inc., is considering the purchase of a machine that would cost $520,000 and would last...
Joanette, Inc., is considering the purchase of a machine that would cost $520,000 and would last for 7 years, at the end of which, the machine would have a salvage value of $52,000. The machine would reduce labor and other costs by $112,000 per year. Additional working capital of $6,000 would be needed immediately, all of which would be recovered at the end of 7 years. The company requires a minimum pretax return of 14% on all investment projects. (Ignore...
Joanette, Inc., is considering the purchase of a machine that would cost $670,000 and would last...
Joanette, Inc., is considering the purchase of a machine that would cost $670,000 and would last for 10 years, at the end of which, the machine would have a salvage value of $57,000. The machine would reduce labor and other costs by $117,000 per year. Additional working capital of $3,000 would be needed immediately, all of which would be recovered at the end of 10 years. The company requires a minimum pretax return of 13% on all investment projects. (Ignore...
Roberts Fabrication and Automation, Inc. (RFA) just completed its Capital Budgeting analysis for a new metallic...
Roberts Fabrication and Automation, Inc. (RFA) just completed its Capital Budgeting analysis for a new metallic 3D printing machine that will aid in the design and production of new “classic” and customautomotive components. The NPV is positive and significant, the IRR is well above the 12% project hurdle rate (required return), and RFA has decided to move forward with the project. The next part of their analysis involves the financing of the machine, that is, whether to purchase, or to...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT