Reference no: EM131942457

Problem - Corporation has recently placed into service some of the largest cruise ships in the world. One of these ships, the Carnival Glory, can hold up to 3,000 passen¬gers and cost $510 million to build. Assume the following additional information:

• The average occupancy rate for the new ship is estimated to be 80% of capacity.

• There will be 300 cruise days per year.

• The variable expenses per passenger are estimated to be $75 per cruise day.

• The revenue per passenger is expected to be $310 per cruise day.

• The fixed expenses for running the ship, other than depreciation, are estimated to be $78,000,000 per year.

• The ship has a service life of 10 years, with a salvage value of $85,000,000 at the end of 10 years.

a. Determine the annual net cash flow from operating the cruise ship.

b. Determine the net present value of this investment, assuming a 12% minimum.