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NET PRESENT VALUE EXERCISE You are investing in a container ship to move your products across the...

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Finance

NET PRESENT VALUE EXERCISE

You are investing in a container ship to move your productsacross the Atlantic Ocean.   Building the ship will cost$2.5 billion, and after operating costs it is expected to bring in$350 million per year for the next 10 years, after which it willhave no salvage value. What is the NPV of this project? Assume k =14%

(Be sure to show your work)

YEAR

NET CASHFLOW

0

($2.5 B)

1

$350 M

2

$350 M

3

$350 M

4

$350 M

5

$350 M

6

$350 M

7

$350 M

8

$350 M

9

$350 M

10

$350 M

What do your results mean? Should you proceed with this project?How would country risk change your considerations?


** Please Answer, Time Sensitive**

Answer & Explanation Solved by verified expert
4.3 Ratings (546 Votes)
Answer Initial Investment Initial Investment 25 Billion 2500 million Annual Operating Cash flow Annual operating income amount after operating costs per year for next 10 years 350 million Depreciation is an operating expense and hence is assumed that it has been deducted to arrive at operating    See Answer
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Transcribed Image Text

NET PRESENT VALUE EXERCISEYou are investing in a container ship to move your productsacross the Atlantic Ocean.   Building the ship will cost$2.5 billion, and after operating costs it is expected to bring in$350 million per year for the next 10 years, after which it willhave no salvage value. What is the NPV of this project? Assume k =14%(Be sure to show your work)YEARNET CASHFLOW0($2.5 B)1$350 M2$350 M3$350 M4$350 M5$350 M6$350 M7$350 M8$350 M9$350 M10$350 MWhat do your results mean? Should you proceed with this project?How would country risk change your considerations?** Please Answer, Time Sensitive**

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