OpenSeas, Inc., is evaluating the purchase of a new cruise ship. The ship will cost $497 million,

Question:

OpenSeas, Inc., is evaluating the purchase of a new cruise ship. The ship will cost

$497 million, and will operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $71.1 million and its cost of capital is 12.5%.

a. Prepare an NPV profile of the purchase.

b. Identify the IRR on the graph.

c. Should OpenSeas proceed with the purchase?

d. How far off could OpenSeas’ cost of capital estimate be before your purchase decision would change?

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Related Book For book-img-for-question

Fundamentals Of Corporate Finance

ISBN: 9781292437156

5th Global Edition

Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford

Question Posted: Feb 27, 2024 03:07 AM

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OpenSeas, Inc., is evaluating the purchase of a new cruise ship. The ship will cost $497 million,

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Fundamentals Of Corporate Finance

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