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Determine the annual net cash flows

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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 can hold up to 3,600 passengers and cost $750 million to build. Assume the following additional information:

There will be 300 cruise days per year operated at a full capacity of 3,600 passengers.

The variable expenses per passenger are estimated to be $90 per cruise day.

The revenue per passenger is expected to be $450 per cruise day.

The fixed expenses for running the ship, other than depreciation, are estimated to be $100,000,000 per year.

The ship has a service life of 10 years, with a residual value of $120,000,000 at the end of 10 years.

Required -

a. Determine the annual net cash flows 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.

Reference no: EM132706951

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