Question
Cargo Line is a massive cargo ship company that contracts with larger, well-known shippers to provide container shipping by sea to any deep water port
Cargo Line is a massive cargo ship company that contracts with larger, well-known shippers to provide container shipping by sea to any deep water port in the world. Cargo Line owns 50 ships, and currently has contracts for 47 of those ships. The other shippers pay Cargo Line $2,500,000 per year to provide shipping services for their customers containers. Cargo Line is considering a new 20-year contract where they would provide 5 ships to a new company for $2,250,000 per year. Each Cargo Line ship incurs yearly costs of $1,100,000 for labor, $300,000 for fuel, $1,000,000 in fixed overhead, and $500,000 in variable overhead. Because the contract is for 20 years, Cargo Line may not use any ships currently in use for the new contract. The cost of acquiring a new ship is $25,000,000, which is depreciated over a 20-year life.
What would be the differential gain or loss on this new contract?
Group of answer choices
A differential gain of $1,750,000.
A differential gain of $45,000,000.
A differential loss of $63,000,000.
A differential loss of $15,000,000.
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