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OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost...

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Accounting

OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost $503 million, and would operate for
20 years. OpenSeas expects annual cash flows from operating the ship to be $71.8 million (at the end of each year) and
its cost of capital is 12.2%
a. Prepare an NPV profile of the purchase using discount rates of 2.0%,11.5% and 17.0%.
b. Identify the IRR (to the nearest 1%) on a graph.
c. Is the purchase attractive based on these estimates?
d. How far off could OpenSeas' cost of capital be (to the nearest 1%) before your purchase decision would change?
Note: Subtract the discount rate from the actual IRR. Use Excel to compute the actual IRR.
The NPV for a discount rates of 2.0% is $671.03 million. (Round to the nearest integer.)
The NPV for a discount rates of 11.5% is $50.56 million. (Round to the nearest integer.)
The NPV for a discount rates of 17.0% is $-98.93 million. (Round to the nearest integer.)
b. Identify the IRR (to the nearest 1%) on a graph.
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