3. OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost $499 million, and will operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $68.4 million and its cost of capital is 11.6%. Prepare an NPV profile of the purchase. To plot the NPV profile we compute the NPV of the project for various discount rates and plot the curve. The NPV for a discount rate of 2.0% is $______________________million. (Round to one decimal place.) The NPV for a discount rate of 11.5% is $_____________________million. (Round to one decimal place.) The NPV for a discount rate of 17.0% is $_____________________million. (Round to one decimal place.) The NPV profile is: Graph portion from picture. Identify the IRR on the graph. The approximate IRR from the graph is_______________%. (Round your answer to one decimal place.) Should OpenSeas go ahead with the purchase? (Select the best choice below.) A. No, because at a discount rate of 11.6%, the NPV is positive. B. No, because at a discount rate of 11.6%,the NPV is negative. C. Yes, because at a discount rate of 11.6%, the NPV is negative. D. Yes, because at a discount rate of 11.6%, the NPV is positive. How far off could OpenSeas' cost of capital estimate be before your purchase decision would change? (Note: Subtract the discount rate from the approximate IRR.) The cost of capital estimate can be off by ______________%. (Round to one decimal place.
3. OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost $499 million, and will operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $68.4 million and its cost of capital is 11.6%. Prepare an NPV profile of the purchase. To plot the NPV profile we compute the NPV of the project for various discount rates and plot the curve. The NPV for a discount rate of 2.0% is $______________________million. (Round to one decimal place.) The NPV for a discount rate of 11.5% is $_____________________million. (Round to one decimal place.) The NPV for a discount rate of 17.0% is $_____________________million. (Round to one decimal place.) The NPV profile is: Graph portion from picture. Identify the IRR on the graph. The approximate IRR from the graph is_______________%. (Round your answer to one decimal place.) Should OpenSeas go ahead with the purchase? (Select the best choice below.) A. No, because at a discount rate of 11.6%, the NPV is positive. B. No, because at a discount rate of 11.6%,the NPV is negative. C. Yes, because at a discount rate of 11.6%, the NPV is negative. D. Yes, because at a discount rate of 11.6%, the NPV is positive. How far off could OpenSeas' cost of capital estimate be before your purchase decision would change? (Note: Subtract the discount rate from the approximate IRR.) The cost of capital estimate can be off by ______________%. (Round to one decimal place.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
3. OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost $499 million, and will operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $68.4 million and its cost of capital is 11.6%.
Prepare an NPV profile of the purchase. To plot the NPV profile we compute the NPV of the project for various discount rates and plot the curve.
The NPV for a discount rate of 2.0% is $______________________million.
(Round to one decimal place.)
The NPV for a discount rate of 11.5% is $_____________________million.
(Round to one decimal place.)
The NPV for a discount rate of 17.0% is $_____________________million.
(Round to one decimal place.)
The NPV profile is:
Graph portion from picture.
Identify the IRR on the graph.
The approximate IRR from the graph is_______________%.
(Round your answer to one decimal place.)
(Round your answer to one decimal place.)
Should OpenSeas go ahead with the purchase?
(Select the best choice below.)
A. No, because at a discount rate of 11.6%, the NPV is positive.
B. No, because at a discount rate of 11.6%,the NPV is negative.
C. Yes, because at a discount rate of 11.6%, the NPV is negative.
D. Yes, because at a discount rate of 11.6%, the NPV is positive.
How far off could OpenSeas' cost of capital estimate be before your purchase decision would change?
(Note: Subtract the discount rate from the approximate IRR.)
The cost of capital estimate can be off by ______________%.
(Round to one decimal place.)
(Round to one decimal place.)
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 4 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education