Diamond Cruise lines is considering buying a cruise ship from a soon to be insolvent competitor. The
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Question:
Diamond Cruise lines is considering buying a cruise ship from a soon to be insolvent competitor. The following information is available (all amounts in $millions):
- The investment will generate a pre-tax profit of $50 per year over 5 years. Costs for depreciation are included in the pre-tax profit.
- The ship costs $300, and will immediately require a $120 refurbishment. The ship is considered to be a single asset (to make things easier for accounting exams), will be straight line depreciated over 5 years, and has a salvage value of $20.
- The tax rate is 30%, and the CCA rate on the ship is 15%
- $10 in items related to working capital needs to be on-hand at all times.
- The investor is also considering a similar investment that will generate an after tax return of 10%.
Required:
Calculate the Net Present Value of this project
Related Book For
Fundamentals of corporate finance
ISBN: 978-0470876442
2nd Edition
Authors: Robert Parrino, David S. Kidwell, Thomas W. Bates
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