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OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost $496 million and will operate for 20 years. OpenSeas expects
OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost $496 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 12.0%. a. Prepare an NPV profile of the purchase. b. Identify the IRR on the graph. c. Should OpenSeas go ahead with the purchase? d. How far off could OpenSeas's cost of capital estimate be before your purchase decision would change?
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