Net present Value Method Blue Ocean Corporation placed into service some of the largest cruise ships in the world. One of these ships can hold up to 3,000 passengers and cost $720 million to build Assume the fotlowing additional information: There will be 300 cruise days per year operated at a full capacity of 3,000 passengers The variable expenses per passenger are estimated to be $100 per cruise day, The revenue per passenger is expected to be $500 per cruise day The fore expenses for running the ship, other than depreciation, are estimated to be $111,200,000 per year. The ship has a service life of 10 years, with a residual value of $120,000,000 at the end of 10 years Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 0.890 0.826 0.797 0.756 0.694 0.840 0.751 0.212 0.658 0.579 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 0.705 0.564 0.507 0.432 0.335 2 0.665 0.513 0.452 0.376 0.229 0.627 0.467 0.404 0.233 9 0.592 0.424 0 361 0.284 0.194 LO 0.550 0.386 0.322 0.242 0.162 2 4 6 0.32 Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2:28 2.106 4 3.465 3.170 3.032 2:855 2.589 5 4.212 3.791 3.605 3.353 2.991 6 4.917 4.355 4.111 3.785 3:326 2 5.582 4.868 4.564 4.160 3.605 8 6.210 52335 4.968 4.487 3.837 6.802 5.259 5328 4.772 1.031 10 7360 6.145 5.650 5.019 1.192 a. Determine the annual net cash flows from operating the cruise ship Revenus Less: Variable expenses Fixed expenses Annual net cash flows b. Determine the net present value of this investment, assuming a 12% minimum rate of retum. Use the present value tables above. 7 5:582 8 4.868 5.335 5.259 3.605 3.837 6,210 6.802 7.360 4.564 4.968 5.328 5.650 4.160 4.487 4.772 9 4.031 10 6.145 5.019 4.192 5. Determine the annual net cash flows from operating the crunte ship. Revenues LOSS: Variable expenses Fixed expenses Annual net cash flows b. Determine the net present value of this investment, assuming a 129 minimum rate of retum. Use the present value tables above Present value of annual net cash nows Present value of residual value Total present value Initial investment Net present value