OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost $500 million,
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OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost $500 million, and would operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $70 million (at the end of each year) and its cost of capital is 12%.
Prepare an NPV profile of the purchase.
Estimate the IRR (to the nearest 1%) from the graph.
Is the purchase attractive based on these estimates?
How far off could OpenSeas’ cost of capital be (to the nearest 1%) before your purchase decision would change?
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