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Opulence Corporation operates several large cruise ships. One of these ships, the Bellwether , can hold up to 2,400 passengers and cost $480 million to
Opulence Corporation operates several large cruise ships. One of these ships, the Bellwether, can hold up to 2,400 passengers and cost $480 million to build. Assume the following additional information:
- There will be 300 cruise days per year operated at a full capacity of 2,400 passengers.
- The variable expenses per passenger are estimated to be $90 per cruise day.
- The revenue per passenger is expected to be $450 per cruise day.
- The fixed expenses for running the ship, other than depreciation, are estimated to be $67,392,000 per year.
- The ship has a service life of 10 years, with a residual value of $80,000,000 at the end of 10 years.
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a. Determine the annual net cash flow from operating the cruise ship.
Revenues | $ |
Variable expenses | |
Fixed expenses | |
Annual net cash flow | $ |
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 | $ |
Present value of residual value | |
Total present value | $ |
Amount to be invested | |
Net present value | $ |
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