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This question concerns calculating NPV & the largest shipping container logistics company in the world A.P. M?ller-Maersk Group, headquartered in Copenhagen, Denmark. Management is thinking of spending DKr400m now on a new leased ‘Capesize’ ship that would increase its international container delivery revenues by an estimated DKr180m annually over the vessels four-year lease term.

[Hint: Begin by graphing the relationship between NPV & discount rate for this shipping project over the lease & assume for simplicity that the relationship is linear; so find all 4 annual cash flow points on the line's graph, representing each of the 4 years of revenue! you may also considering using the RATE function in Excel].

Would you accept this project if the cost of capital hurdle rate for A.P. M?ller-Maersk Group was set at 16%?

What is the maximum discount rate at which the project would still be accepted (to 2 decimal places)?

Explain your reasoning throughout.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92777283

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