# Calculating NPV in the given case

Halcyon Lines is considering the purchase of a new bulk carrier for $8 million. The forecast for revenues are $5 million a year and operating costs are $4 million. A major refit costing $2 million will be required after both the fifth and tenth years. After 15 years, the ship is expected to be sold for scrap at $1.5 million. If the discount rate is 8%, what is the ship's NPV?

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Year Cash Flow Present Value

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NPV

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#### Solution Preview

Please refer attached file for better clarity of tables.

Let us analyze cash flows associated with the project

Amount in million $

Year End Revenues Operating costs Others* Net Cash flow PV factor PV

n R O X C=R+O+X PVF=1/(1+8%)^n C*PVF

0 -8 -8 1.0000 -8.0000

1 5 -4 1 0.9259 0.9259

2 5 -4 1 0.8573 0.8573

3 5 -4 1 0.7938 0.7938

4 5 -4 ...

#### Solution Summary

Solution describes the steps to calculate net present value in the given case.