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Opulence Corporation operates several large cruise ships. One of these ships, the Bellwether , can hold up to 3,000 passengers and cost $600 million to
Opulence Corporation operates several large cruise ships. One of these ships, the Bellwether, can hold up to 3,000 passengers and cost $600 million to build. Assume the following additional information:
- There will be 300 cruise days per year operated at a full capacity of 3,000 passengers.
- The variable expenses per passenger are estimated to be $75 per cruise day.
- The revenue per passenger is expected to be $375 per cruise day.
- The fixed expenses for running the ship, other than depreciation, are estimated to be $70,200,000 per year.
- The ship has a service life of 10 years, with a residual value of $100,000,000 at the end of 10 years.
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a. Determine the annual net cash flow from operating the cruise ship.
Revenues | $fill in the blank 1 |
Variable expenses | fill in the blank 2 |
Fixed expenses | fill in the blank 3 |
Annual net cash flow | $fill in the blank 4 |
b. Determine the net present value of this investment, assuming a 10% minimum rate of return. Use the present value tables provided above. If required, round to the nearest whole dollar.
Present value of annual net cash flows | $fill in the blank 5 |
Present value of residual value | fill in the blank 6 |
Total present value | $fill in the blank 7 |
Amount to be invested | fill in the blank 8 |
Net present value | $fill in the blank 9 |
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