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Reel Fast Charters, based in the Bahamas, runs multi-day fishing charters for wealthy anglers.ﾃつﾃつThey have been very...

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Finance

  1. Reel Fast Charters, based in the Bahamas, runs multi-dayfishing charters for wealthy anglers.ﾃつﾃつThey have beenvery successful in their first five years in operation and Brian(the owner) is considering adding a second boat.ﾃつﾃつA new80ﾃ｢竄ｬ邃｢ Viking would cost $5,000,000 with another $1,000,000 needed toupgrade the interior to a level that would attract the wealthyclients they desire.ﾃつﾃつThe boat would be depreciatedstraight-line over 15 years, but would be sold at the end of fiveyears, for an estimated $5,000,000.ﾃつﾃつThe new boat wouldgenerate estimated additional revenue of $2,000,000 per year andwould have associated expenses of $625,000.ﾃつﾃつNoadditional working capital would be necessary.ﾃつﾃつThefirmﾃ｢竄ｬ邃｢s tax rate is 30% and the required rate of return is12%.ﾃつﾃつCalculate the NPV and IRR.ﾃつﾃつShould thenew boat be purchased?ﾃつﾃつ

Answer & Explanation Solved by verified expert
3.9 Ratings (617 Votes)
NPV56907646IRR1482The new boat should be purchased since NPV is positiveYearCost    See Answer
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