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Tropical Charters, based in the Bahamas, runs multi-day fishing charters for wealthy anglers. They have been...

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Finance

Tropical Charters, based in the Bahamas, runs multi-day fishingcharters for wealthy anglers. They have been very successful intheir first five years in operation and Brian (the owner) isconsidering adding a second boat. A new 80’ Viking would cost$5,000,000 with another $1,000,000 needed to upgrade the interiorto a level that would attract the wealthy clients they desire. Theboat would be depreciated straight-line over 15 years, but would besold at the end of five years, for an estimated $5,000,000. The newboat would generate estimated additional revenue of $2,000,000 peryear and would have associated expenses of $625,000. No additionalworking capital would be necessary. The firm’s tax rate is 30% andthe required rate of return is 12%. Calculate the NPV. Should thenew boat be purchased?

Solve all three capital budgeting problems on onespreadsheet

Answer & Explanation Solved by verified expert
3.6 Ratings (424 Votes)
NPV56907646The boat should be purchased since NPV is positiveWORKINGSYearInitial    See Answer
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