OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost...
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Finance
OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost $496 million, but would operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $70.8
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.
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