Net Present Value Method

Opulence Corporation operates several large cruise ships. One of these ships, the Bellwether, can hold up to 3,700 passengers and cost $740 million to build. Assume the following additional information:

There will be 300 cruise days per year operated at a full capacity of 3,700 passengers.

The variable expenses per passenger are estimated to be $70 per cruise day.

The revenue per passenger is expected to be $350 per cruise day.

The fixed expenses for running the ship, other than depreciation, are estimated to be $80,808,000 per year.

The ship has a service life of 10 years, with a residual value of $120,000,000 at the end of 10 years.

Net Present Value Method Opulence Corporation operates several large cruise ships. One of these ships, the Bellwether, can hold up to 3,700 passengers and cost $740 million to build. Assume the following additional information: There will be 300 cruise days per year operated at a full capacity of 3,700 passengers. The variable expenses per passenger are estimated to be $70 per cruise day . The revenue per passenger is expcted to be $350 per cruise day . The fixed expenses for run The ship has a service life of 10 years, with a residual value of $120,000,000 at the cnd of 10 years the ship, other than d are estimated to be $80,808,000 per year Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 S 0.747 0.621 0.567 0.497 0.402 6 0.7OS 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 S 4.212 3.791 3.605 3.352 2.991 6 4.917 4.355 4.111 3.784 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 a. Determine the annual net cash flow from operating the cruise ship 388,500,0 77,700,00 80,808,00 Less variable expenses Fixed expenses Annual net cash flow b. Determine the net present value of this investment, assuming a 6% minimum rate of return. Use the present value tables provided above. If required, round to the nearest whole dollar Present value of annual net cash flows Present value of residual value Total present value Less amount to be invested Net present value