OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost $500 million, but would operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $70.0 million (at the end of each year) and its cost of capital is 12.0%

a. Prepare an NPV profile of the purchase using discount rates of 2.0% ,11.5 % and 17.0%.

b. Identify the IRR on a graph.

c. Is the purchase attractive based on these estimates?

d. How far off could OpenSeas' cost of capital estimate be before your purchase decision would change? (NOTE: Subtract the discount rate from the actual IRR. Use Excel to compute the actual IRR.)