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National Cruise Line is considering the acquistion of a new ship that will cost $200,000. In this regard, the president of the company asked the
National Cruise Line is considering the acquistion of a new ship that will cost $200,000. In this regard, the president of the company asked the CEO to analyze cash flows under two itineraries (Alaska and Canada). See following cash flows:
Net Revenue: Alaska - 120,000,000, Canada-105,000,000
Less:
Direct Program Expense: Alaska- 25,000,000, Canada- 24,000,000
Indirect Program Expense- Alaska- 20,000,000, Canada- 20,000,000
Nonoperating Expense- Alaska-21,000,000, Canada- 21,000,000
Add Back Depreciation- Alaska 115,000,000, Canada- 115,000,000
Cash flow per year: Alaska 169,000,000, Canada 155,000,000
Calculate present values of the cash flows both Alaska and Canada using required rate of return at both 12% and 16% and assume a 15 year time horizon.
Focusing on 12 percent required rate of return, what would the oppurtunity cost to the company of using the ship in a Canda itenerary rather than Alaska itenenary be?
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