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Prepare a NPV profile of the purchase using discount rates

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Question - OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost $500 million, but would operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $70.0 million (at the end of each year) and its cost of capital is 12.0%.

a. Prepare a NPV profile of the purchase using discount rates of 2.0%, 11.5% and 17.0%.

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?

Reference no: EM132826355

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