Question
Company A is assessing the purchase of a new ship. The ship will cost $497 million and will operate for 20 years. The company estimates
Company A is assessing the purchase of a new ship. The ship will cost $497 million and will operate for 20 years. The company estimates annual cash flows from operating the ship to be $71.1 million, and its cost of capital is 12.5%.
- Calculate the NPV and IRR of the purchase.
- Prepare an NPV profile of the purchase and highlight the IRR.
- Should the company proceed with the purchase?
- How far off could the firms cost of capital estimate be before your purchase decision would change?
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Understanding Financial Statements
Authors: Lyn Fraser, Aileen Ormiston
11th edition
133874036, 978-0133874037
