Question
OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost $502 million, and will operate for20 years. OpenSeas expects annual
OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost $502 million, and will operate for20 years. OpenSeas expects annual cash flows from operating the ship to be $68.9 million and its cost of capital is 11.4%.
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?
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Fundamentals Of Corporate Finance
Authors: Robert Parrino, David S. Kidwell, Thomas W. Bates
5th Edition
1119795435, 978-1119795438
