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Question 4 (8 marks) Halcyon Lines Inc. is considering purchasing a new ship for $8 million now. The forecasted cash inflows for the project are
Question 4 (8 marks)
Halcyon Lines Inc. is considering purchasing a new ship for $8 million now. The forecasted cash
inflows for the project are $1 million a year for 15 years. A major refit costing $2 million will be
required at the end of Year 5 and Year 10. After 15 years, the ship is expected to be sold at $1.5
million, ignore any depreciation and tax considerations.
What is the NPV of the project if the relevant discount rate is 8% per year? Should you go ahead
with the project? [Hint: Just set up the NPV formula that includes all the relevant cash inflows
and outflows.]
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