Carnival Corporation has recently placed into service some ofthe largest cruise ships in the world. One of these ships, theCarnival Breeze, can hold up to 3,600 passengers, and itcost $750 million to build. Assume the following additionalinformation:
There will be 330 cruise days per year operated at a fullcapacity of 3,600 passengers.
The variable expenses per passenger are estimated to be $140 percruise day.
The revenue per passenger is expected to be $340 per cruiseday.
The fixed expenses for running the ship, other thandepreciation, are estimated to be $80,000,000 per year.
The ship has a service life of 10 years, with a residual valueof $140,000,000 at the end of 10 years.
Present Valueof $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 0.162
Present Valueof an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.352 2.991 6 4.917 4.355 4.111 3.784 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192
a. Determine the annual net cash flow fromoperating the cruise ship.
Revenues $ Less variable expenses Fixed expenses Annual net cash flow $
b. Determine the net present value of thisinvestment, assuming a 12% minimum rate of return. Use the presentvalue tables provided above. If required, round to the nearestdollar.
Present value of annual net cashflows $ Present value of residualvalue Total present value $ Less amount to be invested Net present value $
Carnival Corporation has recently placed into service some ofthe largest cruise ships in the world. One of these ships, theCarnival Breeze, can hold up to 3,600 passengers, and itcost $750 million to build. Assume the following additionalinformation:
There will be 330 cruise days per year operated at a fullcapacity of 3,600 passengers.
The variable expenses per passenger are estimated to be $140 percruise day.
The revenue per passenger is expected to be $340 per cruiseday.
The fixed expenses for running the ship, other thandepreciation, are estimated to be $80,000,000 per year.
The ship has a service life of 10 years, with a residual valueof $140,000,000 at the end of 10 years.
Present Valueof $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 | 0.162 |
Present Valueof an Annuity of $1 at Compound Interest | |||||
Year | 6% | 10% | 12% | 15% | 20% |
1 | 0.943 | 0.909 | 0.893 | 0.870 | 0.833 |
2 | 1.833 | 1.736 | 1.690 | 1.626 | 1.528 |
3 | 2.673 | 2.487 | 2.402 | 2.283 | 2.106 |
4 | 3.465 | 3.170 | 3.037 | 2.855 | 2.589 |
5 | 4.212 | 3.791 | 3.605 | 3.352 | 2.991 |
6 | 4.917 | 4.355 | 4.111 | 3.784 | 3.326 |
7 | 5.582 | 4.868 | 4.564 | 4.160 | 3.605 |
8 | 6.210 | 5.335 | 4.968 | 4.487 | 3.837 |
9 | 6.802 | 5.759 | 5.328 | 4.772 | 4.031 |
10 | 7.360 | 6.145 | 5.650 | 5.019 | 4.192 |
a. Determine the annual net cash flow fromoperating the cruise ship.
Revenues | $ |
Less variable expenses | |
Fixed expenses | |
Annual net cash flow | $ |
b. Determine the net present value of thisinvestment, assuming a 12% minimum rate of return. Use the presentvalue tables provided above. If required, round to the nearestdollar.
Present value of annual net cashflows | $ |
Present value of residualvalue | |
Total present value | $ |
Less amount to be invested | |
Net present value | $ |