...Economy Shipping Cash Flows Incrementales En la primavera de 1950, el Controller de Economy Shipping Co., ubicada cerca de Pittsburg, estaba preparando un informe para el Comité Ejecutivo sobre la factibilidad de reparar uno de los barcos a vapor de la empresa, el Conway, o reemplazarlo por un nuevo barco con motor diesel. Economy Shipping se dedicaba al transporte de carbón desde las minas hasta las industrias consumidoras en el área de Pittsburgh. Todos los barcos de la empresa eran de vapor. Todos tenían por lo menos 10 años de antiguedad y la mayoría tenían entre 15 y 30 años. El Conway tenía 23 años y requería un trabajo de rehabilitación inmediato o su reemplazo. Si se realizaban los trabajos de reparación y matenimiento requeridos, se estimaba que este barco tendría una vida útil de otros 20 años. El valor de libros del Conway era de $ 39.500, pero el Controller estimaba que la compañía no podría cobrar más de $ 25.000 por su venta. Los costos de rehabilitación ascendían a $ 115.000. En dicha rehabilitación, era posible utilizar partes y repuestos de un barco retirado de la actividad en 1948. El valor de libros de estas partes era de 43.500 y su uso reduciría el costo de rehabilitación de $ 115.000 a $ 71.500. Se estimaba que el valor de venta de esas partes en el mercado era de $ 30.000. Las partes no podían usarse para ningún otro barco. Si se decide rehabilitar el Conway, el valor de libros, incluyendo el costo de rehabilitación, será depreciado a fines impositivos en...
Words: 612 - Pages: 3
...Economy Shipping Company It is recommended that Economy Shipping Company (ESC) replace the steamboat, Cynthia, with a new diesel powered boat. The analysis assumed no operating cost in 1950. Although ESC was presumably still in service during this analysis, the costs associated with the project evaluation were not accounted for until 1951. It was also implicit in the NPV calculations that any upgrade required subsequent to 1950 could be performed without any interruption to the daily operations and were performed at the beginning of the year. Therefore, the stoker upgrade and the engine replacements were considered on Jan 1st of the intended year and did not require any downtime for the installation. The evaluation considered four different scenarios: 1. Rehabilitation of Cynthia with the stoker conversion occurring in 1950 2. Rehabilitation of Cynthia with the stoker conversion occurring in 1952 3. Purchase of a new diesel-powered boat with 2 shifts, 12-hour working day 4. Purchase of a new diesel-powered boat with 3 shifts, 8-hour working day Since ESC was considering other projects with a rate of return of 10%, each of the above options were considered using the same rate of return. The company?s balance sheet suggests that management was very conservative. The debt-to-equity ratio in 1950 was 0.075, indicating that the company could easily borrow at the going rate of 3% without fear of bankruptcy. Moreover...
Words: 827 - Pages: 4
...To: Controller From: Dan Goldzband, Financial Analyst Date: April 24, 2007 Re: Capital Budgeting Analysis: Cynthia replacement vs. renovation Background and purpose Economy Shipping needs to either repair/rehabilitate the Cynthia (a 23-year old steam-powered vessel) or replace it with a new, diesel-powered vessel. The purpose of this memo is to summarize the findings of my NPV analysis and recommend the most beneficial course of action to the company. Recommendation and Summary I recommend selling the Cynthia and leasing a diesel-powered vessel. This alternative generates the lowest investment NPV (Net Present Value) of the four possible courses of action. It also enables the company to comply with the possible change in crew shift structure (from two, twelve-hour shifts to three, eight-hour shifts) and the resulting increase in crew size. The NPV of each alternative is summarized below. Note that all four scenarios generate negative NPV’s. This is because only net cash expenditures were considered. Revenue is assumed to be the same under each alternative, therefore, the optimal choice is the one which reduces corporate value the least. Renovate Renovate Cynthia Cynthia Lease and Modify and Modify Purchase Diesel Stoker Now Stoker Later Diesel Acquisition & Repair 6,560 (115,000) (129,351) (331,560) Op C/F’s (806,199) (807,818) (813,898) (633,224) Disposition ...
Words: 425 - Pages: 2
...Economy Shipping Economy Shipping Company (Abridged) Question 1. What are the relevant cash flows under each of the two alternatives? And in what years do they occur? Alternative 1: Rehabilitation of the Conway We decided to divide this alternative in two parts. Part A is Rehabilitation without parts and Part B is Rehabilitation with parts. Facts/Assumptions • Conway’s additional useful life of 20 years. • Book value of Conway: $39,500 • Market value of Conway: $25,000. This is the Opportunity Cost of not selling the Conway at year 0. • Rehabilitation costs: $115,000. If spare parts are used, rehabilitation costs would be $71,500. • Book value of spare parts if used on the Conway: $43,500. • Market value of spare parts: $30,000. This is the Opportunity Cost of not selling the spare parts at year 0. • Annual operating costs of Conway: $203,150 • No dismantling and scrapping costs at the end of useful life (This will be covered by the value of the scrap and used parts). • Return of 10% after taxes. • Tax rate: 48% • Book cost of Conway, including rehabilitation costs, would be depreciated over a 20-year period. • Depreciation according to the straight line method = (Cost - Residual value) / Useful life. For the rehabilitation alternative, residual value is zero at the end of year 20. • ATCF(After-tax cash flow) will be calculated using the formula = Operating Costs after taxes plus Tax shields from depreciation...
Words: 287 - Pages: 2
...CASE STUDY: ECONOMY SHIPPING COMPANY (ABRIDGED) Submitted to: Prof. Roy C. Ybanez MSFIN 222 Submitted by: BASCON, Roland Billy CAJEGAS, Lester ORTIZ, Karmi Ann SALVADORA, Jerick Cezar 02 October 2014 Problem Statement Steamboats are essential parts of Economy Shipping Company (ESC)’s business for it is the main mode of transporting coals from nearby mines to various delivery points. And with the ageing group of steamboats that the company owns, the company is concerned about the status of one of its steamboat – Conway, which is 23 years old and requiring immediate rehabilitation or replacement. Analysis of Alternatives ESC is in consideration of two alternatives as follows: Alternative 1: Replace Conway with a new diesel-powered boat today; sell the Conway and its parts; overhaul the diesel engines in year 10; sell the diesel engine and its parts inventory in year 20 Alternative 2: Rehabilitate the Conway today; operate the Conway for another 30 years; scrap the Conway at the end of year 20. Presented below are the relevant cash flows associated with both alternatives. Since ESC was considering other projects with the rate of 10%, each of the above-mentioned options was considered using the same rate of return. (See attached annex for detailed computation) Alternative 1 Year | Specific Item | After-Tax Cash Flows (48%) | Present Value (10%) | 0 | Selling price of Conway (net of tax) | 31,960 | 31,960 | 0 | Selling price of Conway’s...
Words: 512 - Pages: 3
...Economía Shipping Company (abreviado) En la primavera de 1950, el controlador de Economía Shipping Company, ubicada cerca de Pittsburgh, estaba preparando un informe para el comité ejecutivo con respecto a la viabilidad de la reparación de una de las de empresa barcas de vapor o de reemplazar el barco de vapor con un nuevo barco con motor diesel. El envío de la economía de la empresa se dedica principalmente en el transporte de carbón desde el minas cercanas a las fábricas de acero, servicios públicos y otras industrias en el área de Pittsburgh. La de la compañía de varios barcos de vapor también en ocasiones llevan cargas a lugares tan lejanos como Nueva Orleans. Todos los barcos de propiedad de Economía eran generador de vapor. Todos eran por lo menos 10 años de edad, y la mayoría tenían entre 15 y 30 años de edad. El barco de vapor el controlador estaba preocupado sobre el Conway, tenía 23 años y requiere rehabilitación inmediata o sustitución. Se estima que el Conway tenía una vida útil de otros 20 años, siempre que se hagan las reparaciones y el mantenimiento adecuados. El valor en libros de el Conway fue 39.500 dólares, pero el controlador cree que si la compañía vendió el barco en 1950, traería sólo alrededor de $ 25.000. Se estima que los costos de rehabilitación inmediatas para el Conway a ser $ 115.000. El controlador calcula que estos gastos generales de rehabilitación se extenderían la vida útil de la Conway durante unos 20 años. Nuevas piezas de repuesto...
Words: 1044 - Pages: 5
...La Corporación American Motors es una empresa dedicada a la fabricación automotriz, producía vehículos de pasajeros, vehículos recreacionales y de servicio. En 1973 habia acumulado más de $100 millones de efectivos excedentes producto de tres años de excelente productividad. AMC era pequeño en comparación a GM, Ford y Chrysler. La industria automotriz estaba sujeta a fluctuaciones constantes en las ventas. Los gustos de los consumidores cambiaban rápida y radicalmente, y la adquisición de un automóvil representaba un gasto mayor para la mayoría de los compradores. La volatilidad de los gustos del consumidor, junto con el largo periodo de tiempo que toma realizar el diseño, el pesado equipamiento y los gastos en desarrollo, dan como resultados riesgos substanciales para los fabricantes automotrices. La competencia en la industria era bastante amplia e cuanto al diseño del producto, precio, promoción y la rigurosa distribución. Las ventas eran hechas sobre la base del efectivo, siendo el comerciante quien debía buscar el financiamiento en bancos o compañías financieras propiedad del fabricante. Dentro de la industria AMC parecía débil e inestable, pero esto disminuyó con el boom de los autos pequeños. AMC se dedicó a fabricar y vender automóviles pequeños y económicos, lo que le retribuyó bastantes beneficios al irrumpir en el mercado con sus autos pequeños antes que sus tres competidores. Una que la preferencia del público por los autos pequeños y económicos disminuyó...
Words: 410 - Pages: 2
...business. This is the beauty of shipbroking. Shipbroker don’t need any formal qualifications nor do they need industry accreditation. Also there are low barriers to entry. This is so important. Moreover shipbrokers usually earn 1.25 percent of the total freight bill. So if 50.000 mt of steels from the black sea to China gets fixed at usd 35 per tonne. The total freight bill is usd 1.75 million. 1.25 percent of 1.75 million is usd 21,875 dollars in comission to the broker. Economy in shipping industry Strong global economic growth and favorable geographical distribution have more than doubled the tonnage demand growthnrate from the 1990s to this decade: from 3 percent to 6.5 percent. Our estimate for 2007 is as high as 9 percent. The principal shipping and shipbroking centres are London, New York and Singapore. Tokyo has a longstanding tradition in shipping/shipbroking, which is now more focussed on Japanese domestic trade. Other places continue to develop in international shipping services, such as: Hong Kong, Shanghai, Delhi and Mumbai; Copenhagen, Geneva, Genoa, Hamburg, Oslo, Paris and Piraeus in Europe; and in North America, Connecticut, Houston and Montreal are important shipbroking centres Why...
Words: 365 - Pages: 2
...the Lloyd's crest are the registered trademarks of the society incorporated by the Lloyd's Act 1871 by the name of Lloyd's. CONTENTS WELCOME TO THE COURSE ........................................................................................................ 3 STRUCTURE OF THE COURSE ...................................................................................................... 4 INTRODUCTION TO MODULE 1 ................................................................................................... 7 1. ECONOMIC ANALYSIS OF THE SHIPPING INDUSTRY ........................................................... 8 1.1 The Function of Shipping .................................................................................................. 8 1.2 The Structure of World Seaborne Trade and the Demand for Shipping Services....................... 8 1.3 The Ton-Mile as a Measurement of Demand for Shipping Services ....................................... 12 2. ANALYSIS OF GLOBAL COMMODITIES ON-BOARD SHIPS .................................................. 14 2.1 Crude Oil Seaborne Trade .............................................................................................. 14 2.2 Other Challenges for Crude oil Transportation ................................................................... 16 2.3 Iron Ore Seaborne Trade ............................................................................................... 16 ...
Words: 10161 - Pages: 41
...Chapter-1 – INTRODUCTION 1.1 Indian Scenario in Shipping Maritime transport, which plays a vital role in the development of the country, comprises ports, shipping, shipbuilding and ship repair, and inland water transport systems. According to the Ministry of Shipping, Government of India, approximately 95% of the India’s trade by volume, and 70% by value, is moved through maritime transport. India is among the top 20 leading countries having large number of merchant fleets in the world. The Gross Tonnage (GT) under the Indian flag was 10.1 million GT as of 1.09.2010, with as much as 1029 ships in operation. Ports act as an interface between ocean transport and land transport. India has 12 major ports viz. Kolkata (including Dock complex at Haldia), Paradip, Vishakapatnam, Chennai, Ennore, Tuticorin, Cochin, New Mangalore, Mormugao, Jawaharlal Nehru at Nhava, Mumbai, and Kandla, and 187 minor ports. Despite recessionary conditions, traffic handled at major ports has grown on an average by 5.7% in the year 2009-10, over the year 2008-09. However, ports like Haldia (-20.4%), Ennore (-6.9%) and New Mangalore (-3.2%) are few of the main ports that witnessed negative growth in 2009-10. Nevertheless, most of the ports have not achieved their target for the year 2009-10. Mormugao (8.5%), Tuticorin (8.1%) Mumbai (2%), Kandla (2%), and Paradip (1.8%) were the only ports which achieved their growth target for 2009-10. Haldia (-22.1%)...
Words: 30004 - Pages: 121
...Cairo - Egypt Business Economics Research Paper A look into the Economics of the shipping business. Mai Hamed 12/27/2010 Table of Contents List of Figures ................................................................................................................................................ 3 List of Tables ................................................................................................................................................. 3 Introduction to NNC Business Activity .......................................................................................................... 4 Backward and Forward Market .................................................................................................................... 8 The freight market .................................................................................................................................... 8 The sale and purchase market .................................................................................................................. 9 The New Building market.......................................................................................................................... 9 The demolition market ............................................................................................................................. 9 Supply and demand Functions in the shipping market ...............................................................................
Words: 1872 - Pages: 8
...Exclusive Summary Shipping has been an important human activity, especially where prosperity depended primarily on international trade and interregional trade. Transportation has been one of the main factors of globalization, along with communications, international standardization, and trade liberalization. Due to a number of technological, economic, and socio-cultural forces, only limited country can keep itself fully isolated from the economic activities of other countries. Many countries have seen enormous economic growth in the recent past due to their willingness to open their borders and markets to foreign investment and trade. This increased flow of knowledge, resources, goods, and services among world’s nations is called “globalization”, formally defined as the development of an increasingly integrated global economy marked especially by free trade, free flow of capital, and the tapping of cheaper foreign labor markets. Introduction Marine transportation is an integral, if sometimes less publicly visible, part of the global economy. The marine transportation system is a network of specialized vessels, the ports they visit, and transportation infrastructure from factories to terminals to distribution centers to markets. Maritime transportation is a necessary complement to and occasional substitute for other modes of freight transportation. For many commodities and trade routes, there is no direct substitute for waterborne commerce. The Important of Maritime Transport...
Words: 1767 - Pages: 8
...goods to global markets via marine shipping. From coast to coast to coast, Canada’s economic growth is intrinsically linked to the marine shipping industry. + Marine shipping is increasing because the demand for trade with Canada is growing. However, Canadians and the country’s economic growth demand a safe and sustainable marine shipping industry. + Polling shows that Canadians are equally aware of the importance of marine shipping to our economy and that environmental concerns cannot be ignored, especially along our coastlines. + Canadians expect improvement by all marine shipping stakeholders — from governments to industry...
Words: 1345 - Pages: 6
...can be characterized by high rivalry from competitors who compete on the same services with very little differentiation, medium power from suppliers who supply the resources necessary to run the business, high buyer power because customers can basically find an equal service from any firm in the industry, low substitution threat from other means of shipping transportation, and low threat of new entrants due to the high initial capital outlay and need of management experience. In this analysis, we will delve deeper into each of the dynamics within Porter’s 5 Forces to form an opinion of why the industry is attractive to be in and then discuss how competition greatly increased during 1988-1989. In the air express industry, where customers can ship their packages over long distances via airplane, there is high rivalry because the firms competing in the industry all do the same service. Since there is little differentiation between firms, each firm must battle for customers by either providing better or new services, integrating new competencies into their business processes, or doing business at a low price to create bigger economies to scale which will then cut down operating costs. Firms who want to compete provide aggressive products like next day delivery; integrate new business practices like owning and operating a fleet of jets with company employees; or undercut the competition in viscous price wars. Thus, rivalry with the industry is high. Supplier power is medium to...
Words: 1272 - Pages: 6
...manager from the Fidelity Magellan Fund, reiterated of finding practical indicators around everyone’s daily lives (Sindhi, 2013). That may include looking at what products friends were buying or what stores seemed to be ever crowded. That is relatable to the Baltic Dry Index (BDI) which is a practical economic indicator on an international scale. Baltic Dry Index is the measure of what it would costs to ship raw materials like steel, coal, iron ore and cement around the world. It is the equilibrium price of shipping raw materials, decided upon by the number of cargo ships and the market demand for shipping raw materials. The Baltic Dry Index is affected by the demand changes for raw materials and changes in oil price (Sindhi, 2013). Changes in the BDI appear on the changes of global demands for manufactured products. Furthermore, this demand affects the price of crude oil, which consequently impacts the cost of maritime shipping. To get a complete view of the whole shipping industry while searching for various transportation costs, the Baltic Exchange goes through the costs of each of the following four ship sizes. Capemax, which accounts for 10 percent of the global fleet, this are ships capable of carrying 100,000+ tons of deadweight and are, therefore, too big to pass through the Panama Canal. Panamax, which covers 19 percent of the world’s fleet, they are ships that carry between 60,000-80,000 tons of deadweight cargo and can hardly pass through the Panama Canal. Supermax...
Words: 1041 - Pages: 5
