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Ocean Carrier Case Solution, Harvard Business Case

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Corporate Finance and Value Creation Memorandum

Ocean Carriers

November 2015

EXECUTIVE SUMMARY

Due to an attractive lease agreement proposed by a larger client, the investment department has conducted an extensive evaluation of the possibility to invest in a new $39 million capesize carrier. This material should be distributed as a basis for the decision regarding the commission of the carrier and includes current assumptions and calculations. The investment department has come to the absolute conclusions to decline the offer to enter into the lease agreement, due to the unprofitability of commissioning a new vessel. This conclusions hold both under U.S. tax law as well as Hong Kong tax law. The net present value of the project is currently -$6,968.828 under U.S. tax law and -$1,228,132 under Hong Kong tax law. The internal rate of returns is 5.5% under U.S. tax law and 8.4% under Hong Kong tax law. The project has been discounted at Oceans Carriers current hurdle rate of 9%.

Investment Opportunity Ocean Carriers are currently in negotiations with a well esteemed charterer regarding a three-year charter on a capesize ocean freighter. Our client has made an offer of $ 20,000 per day with an annual escalation of $200 per day starting in the beginning of year 2003. As we, Ocean Carriers, do not currently have a capesize of the required specifications available for chartering we hereby present an investment opportunity involving the commission of a new vessel. This memorandum asserts possible future market conditions in an effort to determine whether this investment is likely to be profitable or not....

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