A B C D E E G 1 2 | National Cruise Line, Inc. is considering the acquisition of a new ship that will cost $200,000,000. In 3 this regard, the president of the company asked the CFO to analyze cash flows associated with 4 |operating the ship under two alternative itineraries: Itinerary 1, Caribbean Winter/Alaska Summer and 5 ltinerary 2, Caribbean Winter/Eastern Canada Summer. The CFO estimated the following cash flows, g |Which are expected to apply to each of the next 15 years: 7 . Caribbean/Alaska _Sanbhean - 9 Net revenue $ 120,000,000 $ 105,000,000 10 Less: 11 Direct program expenses (25,000,000) (24,000,000) 12 Indirect program expenses (20,000,000) (20,000,000) 13 Non-operating expenses (21,000,000) (21,000,000) 14 Add back depreciation 115,000,000 115,000,000 15 Cash flow per year $ 169,000,000 $ 155,000,000 16 17 The estimated cost of the new ship and during of expected cash flows is: 18 19 Estimated cost of new ship $ 600,000,000 20 Estimated period of cash flows in years 15 21 22 Required 23 |a. For each of the itineraries, calculate the present values of the cash flows using required rates of 24 return of both 12 and 16% using both present value factors and separately using Excel PV function. 25 |Assume a 15-year time horizon. Should the company purchase the ship with either or both required 26 27 Caribbean/Alaska 28 12% 29| | I x = n 30 31 16% 32 x - 33 A B C D E F G H 22 Required 23 a. For each of the itineraries, calculate the present values of the cash flows using required rates of 24 return of both 12 and 16% using both present value factors and separately using Excel PV function. 25 Assume a 15-year time horizon. Should the company purchase the ship with either or both required 26 27 Caribbean/Alaska 28 12% 29 x 30 31 16% 32 X = 33 34 Caribbean/ Eastern Canada 35 12% 36 X = 37 38 16% 39 X = 40 41 42 Caribbean/Alaska Caribbean/ Eastern Canada 43 Rate 12% 16% 12% 16% 44 Number of periods 45 Payments 46 Future value 47 Type 48 49 PV 50 51 52 53 54 5544 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 e Number of periods Payments Future value Type PV b. The president is uncertain whether a 12 percent or a 16 percent required return is appropriate. Explain why, c. Focusing on a 12 percent required rate of return, what would be the opportunity cost to the company of using the ship in the Caribbean/Eastern Canada itinerary rather than a Caribbean/Alaska itinerary