Halcyon Lines is considering the purchase of a new bulk carrier for $8 million. The forecasted revenues are $5 million a year and operating costs are $4 million. A major refit costing $2 million will be required after both the fifth and tenth years. After 15 years, the ship is expected to be sold for scrap at $1.5 million. What is the NPV? Assume the opportunity cost is 8%.

a) What is the PV of the initial investment (cost)?

b) What is the PV of operating cash flows (revenue)? Note that the net cash value every year is ($5 million - $4 million = $1 million)

c) What is the PV of all refit costs?

d) What is the PV of scrap value?

e) What is the NPV given all the values above?

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