## Related questions with answers

OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost $\$ 497$ million, and would operate for $20$ years. OpenSeas expects annual cash flows from operating the ship to be $\$ 71.1$ million (at the end of each year) and its cost of capital is $12.5 \%$.

a. Prepare an NPV profile of the purchase.

b. Estimate the IRR (to the nearest $1 \%$ ) from the 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?

Solution

VerifiedIn this question, we are asked to prepare an NPV profile of the purchase.

We are also asked to estimate the IRR, determine if the project is attractive based on the estimates, and determine the maximum deviation.

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