Reference no: EM132690466
Problem - Net present value method - Carnival Corporation has recently placed into service some of the largest cruise ships in the world. One of these ships, the Carnival Dream, can hold up to 3,600 passengers and cost $750 million to build. Assume the following additional information:
There will be 320 cruise days per year operated at a full capacity of 3,600 passengers.
The variable expenses per passenger are estimated to be $95 per cruise day.
The revenue per passenger is expected to be $280 per cruise day.
The fixed expenses for running the ship, other than depreciation, are estimated to be $65,000,000 per year.
The ship has a service life of 10 years, with a residual value of $100,000,000 at the end of 10 years.
Required -
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 rate of return. Use the present value tables provided in the chapter in determining your answer.