National Cruise Line, Inc. is considering the acquisition of a new ship that will cost $200,000,000. In this regard, the president of the company asked the CFO to analyze cash flows associated with operating the ship under two alternative itineraries: Itinerary 1, Caribbean Winter/Alaska Summer and Itinerary 2, Caribbean Winter/Eastern Canada Summer. The CFO estimated the following cash flows, which are expected to apply to each of the next 15 years:

			Caribbean/Alaska	Caribbean/ Eastern Canada
Net revenue			$ 120,000,000	$ 105,000,000
Less:
Direct program expenses			(25,000,000)	(24,000,000)
Indirect program expenses			(20,000,000)	(20,000,000)
Non-operating expenses			(21,000,000)	(21,000,000)
Add back depreciation			115,000,000	115,000,000
Cash flow per year			$ 169,000,000	$ 155,000,000

The estimated cost of the new ship and during of expected cash flows is:
		Estimated cost of new ship				$ 600,000,000
		Estimated period of cash flows in years				15

			Caribbean/Alaska		Caribbean/ Eastern Canada
	Rate		12%	16%	12%	16%
	Number of periods
	Cash Flow		$ 169,000,000	$ 169,000,000	$ 155,000,000	$ 155,000,000
	Future value		$0	$0	$0	$0
	Type		0	0	0	0
	PV

a. Should the company purchase the ship with either or both required rates of return? Explain.

b. The president is uncertain whether a 12 percent or a 16 percent required return is appropriate. Explain why,

c. Focusing on a 12 percent required rate of return, what would be the opportunity cost to the company of using the ship in the Caribbean/Eastern Canada itinerary rather than a Caribbean/Alaska itinerary?