OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost $499 million, and will operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $68.8 million and its cost of capital is 11.8%.

a. Prepare an NPV profile of the purchase.

b. Identify the IRR on the graph.

c. Should OpenSeas proceed with the purchase?

d. How far off could OpenSeas' cost of capital estimate be before your purchase decision would change?

Open Seas Ine is waiting the purchase of a new ship The ship will cost 5499 million and went for 20 years per expect a cash operating the ship to be on and its capital 1 118% a. Prepare an NPV prole of the purchase b. Lently the IRR on the graph. c. Should percas proceed with the porchase? 1. How would Openas cost of capital estimate but before your purchases on would change? a. Prepare an NPV profile of the purchase. To plot the NPV profile we compute the NPV of the project for various discount rates and plot the curve. The NPV for a discount rate of 2.0% is 5 million (Round to one decimal place.) The NPV for a discount rate of 11.5% is $ million (Round to one decimal place.) The NPV for a discount rate of 17.0% is $ million (Round to one decimal place.) The NPV profile is NPV Profile of Cruise Ship Investment a 1.000 Q 900- NPV Profile of Cruise Snip investment A 1.000 900- 800 700- 600- 500 NPV ($ millions) 400- 300- 200- 100- 0 2 4 8 10 12 -100- 16 18 20 b. Identity the IRR on the graph The approximate IRR from the graph is % (Round your answer to one decimal place.) c. Should Open Seas go ahead with the purchase? (Select the best choice below) OA. No, because at a discount rate of 11 8% the NPV is positive. OB. Yes, because at a discount rate of 11.8% the NPV is negative OC. Yes, because at a discount rate of 118% the NPV is positive OD No because at a discount rate of 11 8% the NPV is negative d. How far off could Open Seas cost of capital estimate be before your purchase decision would change? (Note: Subtract the discount rate from the approximate IRR) The cost of capital estimate can be off by % (Round to one decimal place)