91Ó°ÊÓ

International Fabricators Inc. is considering an investment in equipment that will replace direct labor. The equipment has a cost of \(\$ 85,000\), with a \(\$ 5,000\) residual value and a 10 -year life. The equipment will replace one employee who has an average wage of \(\$ 23,000\) per year. In addition, the equipment will have operating and energy costs of \(\$ 6,000\) per year. Determine the average rate of return on the equipment, giving effect to straight-line depreciation on the investment.

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. b. Determine the net present value of this investment, assuming a \(12 \%\) minimum rate of return. Use the present value tables provided in the chapter in determining your answer. c. Assume that Carnival Corp. decided to increase its price so that the revenue increased to \(\$ 320\) per passenger per cruise day. Would this allow Carnival Corp. to earn a \(15 \%\) rate of return on the cruise ship investment, assuming no change in any of the other assumptions? Use the present value tables provided in the chapter in determining your answer.