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 million and its cost of capital is 12%. Using a financial calculator, identify the IRR of the new ship. Should OpenSeas go ahead with the purchase? How far off could OpenSeas’ cost of capital estimate be before your purchase decision would change? (a) IRR=12.72%, Yes, 0.72% (b) IRR=11.25%, No, 0.75% (c) IRR=14.82%, Yes, 2.82% (d) IRR=9.34%, Yes, 2.66%
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 million and its cost of capital is 12%. Using a financial calculator, identify the IRR of the new ship. Should OpenSeas go ahead with the purchase? How far off could OpenSeas’ cost of capital estimate be before your purchase decision would change? (a) IRR=12.72%, Yes, 0.72% (b) IRR=11.25%, No, 0.75% (c) IRR=14.82%, Yes, 2.82% (d) IRR=9.34%, Yes, 2.66%
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 16P: Shao Airlines is considering the purchase of two alternative planes. Plane A has an expected life of...
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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 million and its cost of capital is 12%. Using a financial calculator, identify the
(a) IRR=12.72%, Yes, 0.72%
(b) IRR=11.25%, No, 0.75%
(c) IRR=14.82%, Yes, 2.82%
(d) IRR=9.34%, Yes, 2.66%
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