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OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost $501 million, but would operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $70.2 million (at the end of each year) and its cost of capi
OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost million, but would operate for years. OpenSeas expects annual cash flows from operating the ship to be million (at the end of each year) and its cost of capital is 12.2%
a. Prepare an NPV profile of the purchase using discount rates of ,
and .
b. Identify the IRR (to the nearest 1%) on a graph.
c. Is the purchase attractive based on these estimates?
d. How far off could OpenSeas? cost of capital be (to the nearest 1%) before your purchase decision would change?
Note:
Subtract the discount rate from the actual IRR. Use Excel to compute the actual IRR.
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