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Purchase of a New Cruise Ship: NPV, IRR, Cost of Capital

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OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost $495 million, and would operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $70.8 million (at the end of each year) and its cost of capital is 12.5%.

a. The NPV for a discount rate of 2% is _?_ Million (round to nearest million)
b. Estimate the IRR (to the nearest 1%) from the 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?

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Solution Summary

The solution determines the NPV, IRR and cost of capital of the purchase of a new cruise ship.

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