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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
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 $69.2 million (at the end of each year) and its cost of capital is 11.9% 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.) a.Prepare an NPV profile of the purchase using discount rates of 2.0%,11.5% and 17.0%. The NPV for a discount rates of 2.0% is $ million. (Round to the nearest integer.)
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