OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost $$500\mathrm{.}0$ million, and will operate for $20$ years. OpenSeas expects annual cash flows from operating the ship to be $$70\mathrm{.}0$ million and its cost of capital is $12\mathrm{.}00\%.$

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?

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 $2\mathrm{.}00\%$ is $ million. $($Round to two decimal places.$)$

The NPV for a discount rate of $11\mathrm{.}50\%$ is $ million. $($Round to two decimal places.$)$

The NPV for a discount rate of $17\mathrm{.}00\%$ is $ million. $($Round to two decimal places.$)$

The NPV profile is: