Carnival Corporation has recently placed into service some of the largest cruise
ID: 2443474 • Letter: C
Question
Carnival Corporation has recently placed into service some of the largest cruise ships in the world. One of these ships, the Carnival Glory, can hold up to 3,000 passengers and cost $530 million to build. Assume the following additional information:• The average occupancy rate for the new ship is estimated to be 85% of capacity.
• There will be 300 cruise days per year.
• The variable expenses per passenger are estimated to be $80 per cruise day.
• The revenue per passenger is expected to be $310 per cruise day.
• The fixed expenses for running the ship, other than depreciation, are estimated to be $80,000,000 per year.
• The ship has a service life of 10 years, with a salvage value of $90,000,000 at the end of 10 years.
a. Determine the annual net cash flow from operating the cruise ship.
Revenues $
Less: Variable expenses $
Fixed expenses $
Annual net cash flow $
b. Determine the net present value of this investment, assuming a 12% minimum rate of return.
Present value of annual net cash flows $
Present value of salvage value $
Total present value $
Initial investment $
Net present value $
I have answered a. but need help with b.
Thanks!
Explanation / Answer
a) Determine the annual net cash flow from operating the cruise ship. 85% capacity per day total passanger Total Revenue 2550 310 790500 300 237150000 less:variable expense 2550 80 204000 80 61200000 less: Fixed expense 80000000 cash flow 95950000 b) Determine the net present value of this investment, assuming a 12% minimum rate of return.net cash Discounted year flows at 12% 1 95950000 85669643 2 95950000 76490753 3 95950000 68295315 4 95950000 60977960 5 95950000 54444607 6 95950000 48611256 7 95950000 43402907 8 95950000 38752596 9 95950000 34600532 10 95950000 30893332 Total 542138900 Salvage value 90000000 Dicounted at 12% 34698896 576837796 lees initial out lay 530000000 NPV 46837796 85% capacity per day total passanger Total Revenue 2550 310 790500 300 237150000 less:variable expense 2550 80 204000 80 61200000 less: Fixed expense 80000000 cash flow 95950000