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Question 3: Capita. Budgeting Suggested time: 30 minutes Royal Caribbean company is considering investing in a new well-equipped cruise. Assume that the expected annual cash
Question 3: Capita. Budgeting Suggested time: 30 minutes Royal Caribbean company is considering investing in a new well-equipped cruise. Assume that the expected annual cash inflows from the investment will be $500,000. A $2,500,000 net initial investment is required and the project has six-year useful life and 10% required rate of return. Assume that the investment will occur immediately after management approves the project. For making decision on whether to approve or reject the project, compute the Net Present Value (NPV) of this new investment and analyze whether it will be accepted or rejected and why. (10 marks) a. b. To determine a rate at which NPV will be zero (or approximately zero), compute Internal Rate of Return and analyze the result. (10 marks) e. Compute paypack period and analyze interpret the result
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