Reference no: EM13338005
National Cruise Line, Inc. is considering the acquisition of a new ship that will cost $200,000,000 In this regard, the president of the company asked the CFO to analyze cash flows associated with operating the ship under two alternative itineraries: Itinerary 1, Caribbean Winter/Alaska Summer and Itinerary 2, Caribbean Winter/Eastern Canada Summer. The CFO estimated the following cash flows, which are expected to apply to each of the next 15 years:
Caribbean/Alaska Caribbean/Eastern Canada
Net revenue $120,000,000 $105,000,000
Less:
Direct Program Expenses (25,000,000) (24,000,000)
Indirect program expenses (20,000,000) (20,000,000)
Non-operating expenses (21,000,000) (21,000,000)
Add back depreciation 115,000,000 115,000,000
Cash flow per year $169,000,000 $155,000,000
REQUIRED; Answers to the following,
Part A) For each of the itineraries, calculate the present values of the cash flows using required rates of return of
both 12% and 16% Assume a 15-year time horizon. Should the company purchase the ship with either or both required rates of return?
Part B) The president is uncertain whether a 12 percent or a 15 percent required return is appropriate. Explain why, in the present circumstance, spending a great deal of time to determine the correct required return may not be necessary.
Part C) Focusing on a 12 percent required rate of return, what would be the opportunity cost to the company of using the ship in the Caribbean/Eastern Canada itinerary rather than a Caribbean/Alaska itinerary?
|
The board of directors declared a stock dividend
: A corporation had 13,500 shares of $5 par value common stock outstanding when the board of directors declared a stock dividend of 4,995 shares. At the time of the stock dividend, the market value per share was $19. The entry to record this div..
|
|
There are three partners in stewart enterprises
: There are three partners in Stewart Enterprises: Stewart, Tedder and Armstrong. At the end of the year, the partners' capital accounts were in the ratio of 2:1:2, respectively. Compute the ending capital balances of the three partners. (Do not ..
|
|
The amount of interest expense for the first semiannual
: A company issued 5-year, 7% bonds with a par value of $105,000. The company received $102,947 for the bonds. Using the straight-line method, the amount of interest expense for the first semiannual interest period
|
|
Convertible bonds outstanding
: Fogel Co. has $5,000,000 of 8% convertible bonds outstanding
|
|
The acquisition of a new ship
: National Cruise Line, Inc. is considering the acquisition of a new ship that will cost $200,000,000 In this regard, the president of the company asked the CFO to analyze cash flows associated with operating the ship under two alternative itine..
|
|
Accounting is often referred to as the language of business
: Accounting is often referred to as the language of business. What does this mean? Why is it important to know this language? What are some specific areas of business in which you feel the study of accounting will help you?
|
|
The discount rate to be used in accounting for pension plan
: Identify factors employers should consider when choosing the discount rate to be used in accounting for pension plans of the enterprise.
|
|
Specific geographic areas-key customers and sales trends
: Your industrial supply company wantsto create a data warehouse where management can obtain a singlecorporate- wide view of critical sales information to identifybest- selling products in specific geographic areas, key customers,and sales trends.
|
|
What is the payout ratio for winger corporation
: What is the payout ratio for Winger Corporation
|