The White Star Steamship Company is deciding on the financial feasibility of building a new trans-Atlantic liner The Titanic. In order to make the decision the following information has been supplied. Initial cost of ship 5.5m. Annual net cashflows over the expected 10-year life of the project are given below:

YearNet Cashflow (m)05.511.120.630.840.850.460.671.080.891.2100.9

In Year 10 after the final voyage, it is anticipated that the ship will be sold to another line for 2.0 million (not included in the above cashflows)

Required:

• Calculate the NPV of the project using a cost of capital (discount rate) of 15%
• Calculate the payback period

The White Star Steamship Company is deciding on the financial feasibility of building a new trans-Atlantic liner The Titanic. In order to make the decision the following information has been supplied. Initial cost of ship 5.5m. Annual net cashflows over the expected 10-year life of the project are given below:

YearNet Cashflow (m)05.511.120.630.840.850.460.671.080.891.2100.9

In Year 10 after the final voyage, it is anticipated that the ship will be sold to another line for 2.0 million (not included in the above cashflows)

Required:

• Calculate the NPV of the project using a cost of capital (discount rate) of 15%
• Calculate the payback period

A. Payback period: 5 years 6 months; NPV: + 2.867

B. Payback period: 10 years 1 months; NPV: - 8.176

C. Payback period: 7 years 3 months; NPV: - 0.952

D. Payback period: 4 years 5 months; NPV: + 10.967