Cost of capital estimate be before your purchase decision

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Reference no: EM132011751

1. OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost 504 million, and will operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $71.4 million and its cost of capital is 11.9%

a. Prepare an NPV profile of the purchase.

The NPV for a discount rate of 2% is ______ Million

The NPV for a discount rate of 11.5% is _____million

The NPV for a discount rate of 17% is ______million

b. Identify the IRR on the graph.

The approximate IRR from the graph is _____%

c. Should OpenSeas proceed with the? purchase?

A. Yes, because at a discount rate of 11.9%?,the NPV is negative.

B. No, because at a discount rate of11.9%?,the NPV is positive.

C. No, because at a discount rate of 11.9%?,the NPV is negative.

D. Yes, because at a discount rate of 11.9%?,the NPV is positive.

d. How far off could? OpenSeas' cost of capital estimate be before your purchase decision would change?

The cost of capital estimate can be off by ____%

2. If $425 invested today yeilds $500 in one years time, what is the discount factor? a .85 b. 1.85 c 1.7 d 0.09

3. Historically, why werte inflation rates associated with high nomial interest rates?

Reference no: EM132011751

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