Royal Dutch Shipping is planning on Investing $1,600,000 to buy a freighter. Pre
ID: 2632328 • Letter: R
Question
Royal Dutch Shipping is planning on Investing $1,600,000 to buy a freighter. Prepare a net present value analysis based on the assumption that the freighter will be sold for 10% of it's cost at the end of the year 5. Assume a 10% cost of capital. Annual operating cash flows for the project are:
Year 1: $380,000
Year 2: $390,000
Year 3: $400,000
Year 4: $410,000
Year 5: $420,000
Prepare a loan amortization schedule based on monthly payments for the $1,600,000 if Royal Dutch Shipping can pay 10% down on a loan for $1,600,000 and can get a loan for 6% interest for 10 years (do not include this in your Net Present Value computations. This is a separate issue. (CO 3). (Hint: www.bankrate.com/calculators/mortgages/amortization-calculator.aspx )
Explanation / Answer
NPV ANALYSIS
580,000=420000+10% OF 16,00,000
AS THE NPV OF THE FREIGHTER IS POSITIVE, IT IS ADVISABLE TO INVEST.
PVF@10% 0 -1600000 1 -1600000 1 3,80,000 0.909 345420 2 3,90,000 0.826 322140 3 400000 0.751 300400 4 410000 0.683 280030 5 580000 0.621 360180 NPV 8170580,000=420000+10% OF 16,00,000
AS THE NPV OF THE FREIGHTER IS POSITIVE, IT IS ADVISABLE TO INVEST.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.