Reference no: EM132706226
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 passen¬gers and cost $510 million to build. Assume the following additional information:
The average occupancy rate for the new ship is estimated to be 80% of capacity.
There will be 300 cruise days per year.
The variable expenses per passenger are estimated to be $75 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 $78,000,000 per year.
The ship has a service life of 10 years, with a salvage value of $85,000,000 at the end of 10 years.
Required -
a. Determine the annual net cash flow from operating the cruise ship.
b. Determine the net present value of this investment, assuming a 12% minimum.
c. Assume that Carnival decided to increase its price so that the revenue increased to $320 per passenger per cruise day. Would this allow Carnival to earn a 15% rate of return on the cruise ship investment assuming no change in any of the other assumptions?
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