Royal Dutch Shipping is planning on Investing $1,600,000 to buy a freighter
Based on the information provided below, compute the Net Present Value of the project (CO 3). A Net Present Value Template is Attached. (Hint: Don't forget to update the discount rate to the amount required for this project and add your cash flow numbers.)
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 its 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 monthlypayments 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 )
| NPV example | |||
| Discount rate | 16% | ||
| Year | Cash in (out) | PV factors | PV of cash flows |
| 0 | (80,000) | 1.0000 | (80,000) |
| 1 | 20,000 | 0.8621 | 17,241 |
| 2 | 18,000 | 0.7432 | 13,377 |
| 3 | 22,500 | 0.6407 | 14,415 |
| 4 | 10,000 | 0.5523 | 5,523 |
| 5 | 30,000 | 0.4761 | 14,283 |
| Net Present Value | (15,161) | ||
| Internal rate of return | 7.81% |
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Solution: Royal Dutch Shipping is planning on Investing $1,600,000 to buy a freighter