1. OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost 504 million, and will operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $71.4 million and its cost of capital is 11.9%
a. Prepare an NPV profile of the purchase.
The NPV for a discount rate of 2% is ______ Million
The NPV for a discount rate of 11.5% is _____million
The NPV for a discount rate of 17% is ______million
b. Identify the IRR on the graph.
The approximate IRR from the graph is _____%
c. Should OpenSeas proceed with the? purchase?
A. Yes, because at a discount rate of 11.9%?,the NPV is negative.
B. No, because at a discount rate of11.9%?,the NPV is positive.
C. No, because at a discount rate of 11.9%?,the NPV is negative.
D. Yes, because at a discount rate of 11.9%?,the NPV is positive.
d. How far off could? OpenSeas' cost of capital estimate be before your purchase decision would change?
The cost of capital estimate can be off by ____%
2. If $425 invested today yeilds $500 in one years time, what is the discount factor? a .85 b. 1.85 c 1.7 d 0.09
3. Historically, why werte inflation rates associated with high nomial interest rates?