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Case Ocean Carriers

In: Business and Management

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Discoount rate Ship life (years) Scrap value Initial investment M€ Depr./year

9% 25 6720000 39000000 1291200

Pinja Ruonala 241364

Case Ocean Carriers Since the consulting firm fee (200 000 USD) and internal marketing study expenses (150 000 USD) already occurred and thus are sunk costs, they are not taken into account in the investment calculations. Those expenses will realize, no matter whether the investment will be done or not, so they are not relevant. Net present value calculation was done in order to give a recommendation for Ocean Carriers whether to purchase of the $39M capsize. Only change in new working capital was taken into account in the calculations. I used the provided expected daily hire rates for the revenue calculation for the lifetime of the vessel. Annual hire revenue ( expected income) was calculated by deducting the days the vessel spent in maintenance and multiplying the remaining days with the daily hire rate. Annual growth of 4,03% was taken into account in the operating costs. Depreciation was added back in the calculations because of it not having a cash flow effect. Depreciation was added back in the calculations because of it not having a cash flow effect. Since the NPV of the investment is negative in the first setting (when tax rate is 38%), I advise Ocean Carriers not to purchase the capesize. However, in Hong Kong setting when there is no requirement to pay tax on profits, the investment is very profitable.

Year Initial investment Accumulated depr. Basis after depr. Survey cost Survey depr. Net working cap. Change in Net cap. Cash flow of inv. Discounted CF Total disc. CF Expected income -Operating costs +Depreciation =EBIT -Tax at 35% +Tax shield=0,35*depr. =Net income Discounted NI Total disc. NI NPV

2000 -3900000

2001 -3900000

2002 -31200000

2003 1 291 200 37 708 800

2004 2 582 400 36 417 600

2005 3 873 600 35 126 400

2006 5 164 800 33 835 200

2007 6 456 000 32 544 000 - 300 000 60 000 614937 -17911 -17911 -9797,812445

2008 7 747 200 31 252 800 60 000 633385 -18448 -18448 -9258,48332

2009 9 038 400 29 961 600 60 000 652387 -19002 -19002 -8748,842036

2010 10 329 600 28 670 400 60 000 671958 -19572 -19572 -8267,254401

2011 11 620 800 27 379 200 60 000 692117 -20159 -20159 -7812,176177

2012 12 912 000 26 088 000 - 350 000 70 000 712880 -20764 -20764 -7382,148131

2013 14 203 200 24 796 800 70 000 734267 -21386 -21386 -6975,791353

2014 15 494 400 23 505 600 70 000 756295 -22028 -22028 -6591,802838

2015 16 785 600 22 214 400 70 000 778984 -22689 -22689 -6228,951306

2016 18 076 800 20 923 200 70 000 802353 -23370 -23370 -5886,073252

2017 19 368 000 19 632 000 - 750 000 150 000 826424 -24071 -24071 -5562,06922

2018 20 659 200 18 340 800 150 000 851217 -24793 -24793 -5255,900272

2019 21 950 400 17 049 600 150 000 876753 -25536 -25536 -4966,584661

2020 23 241 600 15 758 400 150 000 903056 -26303 -26303 -4693,194679

2021 24 532 800 14 467 200

2022

2023 27 115 200 11 884 800 170 000 986793 -28742 -28742 -3960,050734

2024 28 406 400 10 593 600 170 000 1016397 -29604 -29604 -3742,06629

2025 29 697 600 9 302 400 170 000 1046889 -30492 -30492 -3536,08099

2026 30 988 800 8 011 200 170 000 1078296 -31407 -31407 -3341,43433

2027 32 280 000 6 720 000 - 1 250 000 170000 1110645 1078296 1078296 105250,0722

500000 -500000 -4400000 -4400000 -34325786

515000 -15000 -3915000 -3591743,1

530450 -15450 -31215450 -26273420

546364 -15914 -15914 -12288,14181

562754 -16391 -16391 -11611,73033

579637 -16883 -16883 -10972,55252

597026 -17389 -17389 -10368,5588

25 824 000 13 176 000 850 000 150 000 170 000 930147 958052 -27092 -27904 -27092 -27904 -4434,853688 -4190,733301

7140000 1460000 1 291 200 6 971 200 2 439 920 451 920 4 983 200 3847944,718 34 105 661 -220125

7211400 1518838 1 291 200 6 983 762 2 444 317 451 920 4 991 365 3536009,016

7282800 1580047,171 1 291 200 6 993 953 2 447 883 451 920 4 997 989 3248350,14

6680898 1643723 1 291 200 6 328 375 2 214 931 451 920 4 565 364 2722177,211

6170031 1709965 1 351 200 5 811 266 2 033 943 472 920 4 250 243 2325028,375

6170793 1778877 1 351 200 5 743 116 2 010 091 472 920 4 205 946 2110822,266

6241746 1850565 1 351 200 5 742 381 2 009 833 472 920 4 205 467 1936314,001

6313758 1925143 1 351 200 5 739 815 2 008 935 472 920 4 203 800 1775730,383

6386476 2002726 1 351 200 5 734 950 2 007 232 472 920 4 200 637 1627884,899

6152084 2083436 1 361 200 5 429 848 1 900 447 476 420 4 005 821 1424208,453

6152172 2167399 1 361 200 5 345 973 1 871 091 476 420 3 951 303 1288830,516

6223019 2254745 1 361 200 5 329 474 1 865 316 476 420 3 940 578 1179204,06

6294564 2345611 1 361 200 5 310 153 1 858 553 476 420 3 928 019 1078390,72

6366807 2440139 1 361 200 5 287 868 1 850 754 476 420 3 913 534 985700,8658

5151938 2538477 1 441 200 4 054 661 1 419 131 504 420 3 139 950 725558,1389

5211268 2640778 1 441 200 4 011 690 1 404 092 504 420 3 112 019 659728,4917

5271296 2747201 1 441 200 3 965 295 1 387 853 504 420 3 081 862 599390,2778

5332022 2857913 1 441 200 3 915 309 1 370 358 504 420 3 049 371 544101,9341

5393446 2973087 1 441 200 3 861 559 1 351 546 504 420 3 014 433 493456,8958

5114246 3092902 1 461 200 3 482 544 1 218 890 511 420 2 775 073 416765,2519

5173227 3217546 1 461 200 3 416 881 1 195 908 511 420 2 732 392 376472,8044

5232557 3347214 1 461 200 3 346 543 1 171 290 511 420 2 686 673 339608,7701

5292934 3482106 1 461 200 3 272 028 1 145 210 511 420 2 638 238 305950,7526

5354009 3622435 1 461 200 3 192 774 1 117 471 511 420 2 586 723 275207,9511

4693352 3768419 1 461 200 2 386 133 0 511 420 2 897 553 282823,7648

No tax paid on profits - Hong Kong scenario Everything else in the calculation stays the same until EBT, but taxes are not deducted. EBT Discounted EBT NPV NPV -3900000 -3900000 12 580 291 12 580 291 -3900000 -3577981,7 -31200000 -26260416 6971200 5383045,476 6983762 4947473,069 6993952,829 4545589,458 6328374,928 3773403,202 5811265,888 3178961,447 5743116,294 2882276,408 5742380,562 2643951,532 5739814,775 2424559,791 5734949,503 2222481,328 5429847,626 1930499,383 5345973,14 1743742,285 5329473,966 1594826,245 5310152,741 1457838,933 5287867,607 1331853,959 4054660,989 936923,3955 4011690,366 850453,245 3965295,027 771208,9208 3915308,828 698612,038 3861558,927 632129,7205 3482543,518 523014,3411 3416880,548 470782,5358 3346543,426 423019,6235 3272027,719 379449,9725 3192773,836 339687,2213 2386132,699 232905,1801

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