SwiftCruz plc , a company that operates cruise liners, is considering purchasing a ready - made new
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Question:
SwiftCruz plc , a company that operates cruise liners, is considering purchasing a ready - made new liner for use in the Indian Ocean. The purchase cost of the liner is expected to be 5 0 0 m , payable immediately. The liner is expected to have a useful economic life ( UEL ) of 4 0 years, at which point it would be scrapped at a zero net cost . Capital allowances on the purchase cost of the liner are available and are calculated using the straight - line method over its UEL. The firm predicts that should the project go ahead, it could operate 2 0 trips p . a . with an average of 2 , 5 0 0 passengers per trip. In addition, the firm would expect average revenue of 3 , 0 0 0 per passenger, with the variable costs per passenger expected to be 1 , 0 0 0 . Annual scheduled maintenance and other fixed overheads would likely be 1 5 m p . a . The firm s marginal tax rate is 2 0 % , payable in the year it is incurred, and its after - tax cost of capital is 1 2 % .
Requirement
i Calculate the NPV of the project assume constant figures over years
Work to the nearest m
ii Calculate the margin of safety in percentage terms in relation to the annual
scheduled maintenance and other fixed overheads. Work to the nearest
m and to the nearest
iii. Calculate the margin of safety in percentage terms in relation to the
estimated number of passengers per trip. Work to the nearest m and to
the nearest Hint: try passengers per trip.
Related Book For
A Survey of Mathematics with Applications
ISBN: 978-0134112107
10th edition
Authors: Allen R. Angel, Christine D. Abbott, Dennis Runde
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