Carnival Corporation has recently placed into service some of the largest cruise ships in the world. One

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Carnival Corporation has recently placed into service some of the largest cruise ships in the world. One of these ships, the Carnival Breeze, can hold up to 3,600 passengers, and it can cost $750 million to build. Assume the following additional information:

• There will be 330 cruise days per year operated at a full capacity of 3,600 passengers.

• The variable expenses per passenger are estimated to be $140 per cruise day.

• The revenue per passenger is expected to be $340 per cruise day.

• The fixed expenses for running the ship, other than depreciation, are estimated to be $80,000,000 per year.

• The ship has a service life of 10 years, with a residual value of $140,000,000 at the end of 10 years.

a. Determine the annual net cash flow from operating the cruise ship.

b. Determine the net present value of this investment, assuming a 12% minimum rate of return.

Use the present value tables (Exhibit 2 and Exhibit 5) provided in the chapter in determining your answer.

Exhibit 2: Partial Present Value of $1 Table 

Carnival Corporation has recently placed into service some of the

Exhibit 5: Present Value of $1 at Compound Interest

Carnival Corporation has recently placed into service some of the
Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at...
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Financial And Managerial Accounting

ISBN: 9781337119207

14th Edition

Authors: Carl S. Warren, James M. Reeve, Jonathan Duchac

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