Open Seas, Inc., is evaluating the purchase of a new cruise ship. The ship will cost $500
Question:
Open Seas, Inc., is evaluating the purchase of a new cruise ship. The ship will cost $500 million, and will operate for 20 years. Open Seas expects annual cash flows from operating the ship to be $70 million and its cost of capital is 12%.
a. Prepare an NPV profile of the purchase.
b. Identify the IRR on the graph.
c. Should Open Seas proceed with the purchase?
d. How far off could Open Seas’ cost of capital estimate be before your purchase decision would change?
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Step by Step Answer:
a b The IRR is the point at which the line crosses the x axis In this case it falls very close to 13 ...View the full answer
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Related Book For 
Fundamentals Of Corporate Finance
ISBN: 9780135811603
5th Edition
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford
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