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VSEL has an opportunity to supply a large cruise ship to Royal Caribbean International, a cruise company stationed in the United States. Royal Caribbean International

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VSEL has an opportunity to supply a large cruise ship to Royal Caribbean International, a cruise company stationed in the United States. Royal Caribbean International will pay $19 million upfront i.e. when the contract is signed and S5.1 million one year later. VSEL had obtained loan from HSBC (investment bank) prior to the initial payment from Royal Caribbean International and invest 13.5 million from it at the beginning of the project. Subsequently, VSEL spend $6 million, S6.5 million, S5.7 million, 6.65 million, and $4.7 million as running cost for the first, second, third, fourth and fifth year respectively. Royal Caribbean International will take delivery of the airplane during Year 4, and agrees to pay $7 million at the end of that year and the $12 million balance at the end of year 5. The outcome of the rate of return on this investment as compare with the minimum attractive rate of return (MARR) will determine if VSEL will continue to sustain their current staff strength or they will cede to the option of downsizing after the completion of the 5 year deal. VSEL management request her project management team to conduct an economic analysis on the proposed venture (project) so that they can be better informed on policy formulation in readiness for any exigency that may result from the project. These exigencies include but not limited to staff downsizing, staff retainment, salary freezing, salary cut or closing down some of their plants since they are multinational company. The project management team is planning to approach the task as follovw 1. Generate a table depicting the cash flow estimates for the Project 2. Draw the cash flow diagram for the cash flow estimate 3. Determine the number of rates of return values this project is likely to have. 4. Obtain the values for the rate of return using Microsoft Excel (Spreadsheet). These values should be obtain by plotting the Present worth against the range of rate of return values (0 % to 100 %, step increase of 10%) VSEL management have set a MARR of 15% for any of their project; will you advised VSEL to embark on this project knowing the net positive cash flow received from Royal Caribbean International is reinvested at 14% . The loan VSEL obtained from HSBC for the production of the ship is borrowed at a rate of 10 % 5

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