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Business, 17.02.2020 21:16 tmrodriguez1

OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost $ 502 million, but would operate for 2020 years. OpenSeas expects annual cash flows from operating the ship to be $ 68.2 million (at the end of each year) and its cost of capital is 11.5 %
a. Prepare an NPV profile of the purchase using discount rates of 2.0 %, 11.5% and 17.0.
b. Identify the IRR on a graph.
c. Is the purchase attractive based on these estimates?
d. How far off could OpenSeas' cost of capital estimate be before your purchase decision would change? (NOTE: Subtract the discount rate from the actual IRR. Use Excel to compute the actualIRR.)

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