Opulence Corporation operates several large cruise ships. One of these ships, th
ID: 2579333 • Letter: O
Question
Opulence Corporation operates several large cruise ships. One of these ships, the Bellwether, can hold up to 3,800 passengers and cost $760 million to build. Assume the following additional information:
There will be 300 cruise days per year operated at a full capacity of 3,800 passengers.
The variable expenses per passenger are estimated to be $80 per cruise day.
The revenue per passenger is expected to be $400 per cruise day.
The fixed expenses for running the ship, other than depreciation, are estimated to be $94,848,000 per year.
The ship has a service life of 10 years, with a residual value of $120,000,000 at the end of 10 years.
a. Determine the annual net cash flow from operating the cruise ship.
b. Determine the net present value of this investment, assuming a 6% minimum rate of return. Use the present value tables provided above. If required, round to the nearest whole dollar.
Net present value
I just need the Present Value of residual value, I put 120,000,000 but it says that is wrong. Please and thank you
Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162Explanation / Answer
Answer a
The annual net cash flow from operating the cruise ship.
Answer b
Note : Present Value of residual value will be $120,000,000 * PVIF 6 % 10th year = $120,000,000 * 0.558 = $66,960,000.
The net present value of this investment
Revenues ( 300 cruise days * 3,800 passengers * $400 per cruise day) $456,000,000 Less variable expenses ( 300 cruise days * 3,800 passengers * $80 per cruise day) ($91,200,000) Fixed expenses ($94,848,000) Annual net cash flow $269,952,000Related Questions
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