Net Present Value Method for a Service Company

Opulence Corporation has recently placed into service some of the largest cruise ships in the world. One of these ships, the Bellwether, can hold up to 3,800 passengers and it can cost $760 million to build. Assume the following additional information:

There will be 300 cruise days per year operated at a full capacity of 3,800 passengers.

The variable expenses per passenger are estimated to be $75 per cruise day.

The revenue per passenger is expected to be $375 per cruise day.

The fixed expenses for running the ship, other than depreciation, are estimated to be $88,920,000 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 10% 12% 20% 0.833 0.694 0.579 0.482 0.402 0.335 0.279 0.233 0.194 0.162 696 15% 0.943 0.909 0.893 0.870 0.890 0.826 0.797 0.756 0.712 0.658 0.792 0.683 0.636 0.572 0.567 0.497 0.705 0.564 0.507 0.432 0.665 0.513 0.452 0.376 0.627 0.467 0.404 0.327 0.284 0.558 0.386 0.322 0.247 0.840 0.751 0.747 0.621 0.592 0.424 0.361 10 Present Value of an Annuity of $1 at Compound Interest 10% 12% 20% 0.833 1.528 2.106 Year 6% 15% 0.943 0.909 0.893 0.870 1.626 2.673 2.487 2.402 2.283 3.465 3.170 3037 2.855 3.605 3.353 3.785 5.582 4.868 4.564 4.160 6.210 5.335 4.968 4.487 6.802 759 5.328 4.772 5.019 1.833 1.736 1.690 2.991 3.326 3.605 3.837 4.031 4.192 4.212 3.791 4.917 4.355 4.111 10 7.360 6.145 5.650