Carnival Corporation has recently placed into service some of the largest cruise ships in the world. One of these ships, the Carnival Breeze, can hold up to 3,600 passengers, and it can cost $750 million to build. Assume the following additional information:

• There will be 330 cruise days per year operated at a full capacity of 3,600 passengers.

• The variable expenses per passenger are estimated to be $140 per cruise day.

• The revenue per passenger is expected to be $340 per cruise day.

• The fixed expenses for running the ship, other than depreciation, are estimated to be $80,000,000 per year.

• The ship has a service life of 10 years, with a residual value of $140,000,000 at the end of 10 years.

a. Determine the annual net cash flow from operating the cruise ship.

b. Determine the net present value of this investment, assuming a 12% minimum rate of return.

Use the present value tables (Exhibit 2 and Exhibit 5) provided in the chapter in determining your answer.

Exhibit 2: Partial Present Value of $1 Table 

Exhibit 5: Present Value of $1 at Compound Interest

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Present Value of $1 at Compound Interest 1096 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.424 0.386 1290 0.893 0.797 0.712 0.636 0.567 0.507 0.452 0.404 0.361 0.322 Year 6% 0.943 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 15% 0.870 0.756 0.658 0.572 0.497 0.432 0.376 0.327 0.284 0.247 20% 0.833 0.694 0.579 0.482 0.402 0.335 0.279 0.233 0.194 0.162 10 Periods 4% 5% 5 % 13% 0.96154 0956940 095238 094787 0.94340 0.93897 0.93458 0.90909 0.90090 0.89286 0.88496 0.92456 0915730 0.90703 0.89845 0.89000 0.88166 0.87344 0.82645 0.81 162 0.79719 0.78315 1% 1 0% 11% 12% 3 0.88900 0876300 0.86384 085161 0.83962 0.82785 0.81630 0.75131 0.73119 0.71178 0.69305 0.85480 0838560 0.82270 080722 0.79209 0.77732 0.76290 068301 0.65873 0.63552 0.61332 5 0.82193 0.802450 0.78353 0.76513 0.74726 0.72988 0.71299 062092 0.59345 0.56743 0.54276 6 0.79031 0.767900 0.74622 0.72525 0.70496 0.68533 0.66634 056447 0.53464 0.50663 0.48032 7 0.75992 0.734830 0.71068 068744 0.66506 0.64351 0.62275 051316 048166 0.45235 0.42506 8 0.73069 0.703190 0.67684 065160 0.62741 0.60423 0.58201 046651 0.43393 0.40388 0.37616 9 0.70259 0672900 0.64461 061763 0.59190 0.56735 0.54393 042410 0.39092 0.36061 0.33288 0.67556 0643930 0.61391 058543 0.55839 0.53273 0.50835 038554 0.35218 0.32197 0.29459 05583 056735058201 051316 053464 0385s4 039092 s002 0.7625078270 0543930 064461 055160 066505 068533 071209 0580