Free Essay

Ocean Carriers

In: Business and Management

Submitted By julienminard
Words 7281
Pages 30
Financial Management
CASE STUDY 2: OCEAN CARRIERS
April 20, 2015
Emily Chen (Ro4749035) / Naree Klungpremchitt (R03749057)
Christopher Loo (Ro3749038) / Julien Minard (Ro3749036

Q1: What Factors Drive Average Daily Spot Hire Rates?
Average daily spot hire rates are influenced by supply and demand of the vessels.
Demand of vessels was determined by market condition. There will be an increase in demand for iron and coal, so as capesize fleets when there is strong economy. All of which will effects to an increase in daily hire rates.
In the other hand, if market outlook was poor, vessels would be canceled or converted to other types of vessels of which effects to a decrease in daily hire rates. Moreover, when demand goes up, owners’ are likely to keep vessels in operation as long as possible. Consequently, daily hire rates increase.
Supply of vessels was influenced by the age, size and efficiency the newer ships offered. Bigger vessels with more efficiency, will effect to decrease in ship needed to carry the same amount of cargo. Thus, supply goes down. However, increases in size and efficiency offered by the newer ships offers a 15% premium in daily hire rates, while ships over 25 years old typically received a 35% discount.
Changes in trade patterns also one of the factor affect daily hire rates. When there is a change in supply location, demand for capesizes would increase/decrease depends on the change in distance. If the changes in trade pattern longer the shipping distance, the demand for capsizes would increase, then the daily hire will increase respectively.

Q2: Should Ms. Linn Purchase the $39M Capesize?
Based on the given assumption options, Ms. Linn should only purchase the capsize vessel through the Hong
Kong office, with a recommendation to extend the company’s policy of operating life of the vessels from 15years to 25-years. This scenario produces the only positive NPV at $1,377,523, and the highest IRR of 9.11%.
Purchasing the vessel through Hong Kong and maintaining the current policy of 15-year operating life produces the next highest IRR of 8.38%, however the NPV is -$403,999. It should be noted, that all scenario’s assume a salvage value of $5 million, therefore if the vessel is sold for more than the salvage value the NPV will improve. The table below summarizes the scenario results. Please refer to the attached appendix for calculation sheets. Scenario

US 25 years

US 15 years

HK 25 years

HK 15 years

Tax Rate

35%

35%

N/A

N/A

Salvage Value

N/A

$ 8,710,000

N/A

$5,000,000

Net Present Value (NVP)

$ (7,668,113.53)

$ (8,180,953.79)

$ 1,377,513.12

$ (403,998.93)

Internal Rate of Return (IRR)

5.77%

5.23%

9.11%

8.38%

Q3: What Do You Think of the Company’s Policy of Not Operating Ships Over 15-Years Old?
Based on the scenario analysis the company should re-examine its policy to operate vessels for only 15-years.
NPV is less negative if the ship is operated for a longer period (e.g. NPV of $ (7,668,113.53)) US 25 years vs.
NPV of $ (8,180,953.79) US 15 years)) indicating that it is beneficial for Ocean Carriers to operate more than
15 years. The IRR also improves with longer operating lives.
These scenarios were conducted with the assumption of a $5 million salvage value based on the case study information, and therefore the NPV and IRR would improve if the vessel is sold or salvaged for a greater amount. The most prudent advice is that the company conduct the same valuation analysis prior to preparing

PAGE 1

for the 15-year survey. Decisions to extend the operating life of the vessel should be made at that time based on the market value, market conditions, the pipeline, and outlook.
Additionally, each project is different and the expenditures and earnings will differ based on many factors. If we are assuming on this particular type of project, Ocean Carriers will not make a profit if they choose not continue to operate on ships that are older than 15-year-old. For some of the projects, it would take a longer period of time to have all of the initial investments and expenditures to be covered and break-even to make profitable earnings. Other suggestions to improve profitability include: negotiating with the client to adjust the contract and lock in an increased expected hire rate for a longer period of time; or work with manufacturers/builders of the ships for a better production price on vessels.

APPENDIX BEGINS ON NEXT PAGE

PAGE 2

US 35% TAX ‐ 25 years

Inflation

3%

Purchase Price
$39,000,000.00
Initial Investment
$500,000.00
Scrap after 15 yrs $5,000,000.00

Annual
Escalation
$200

Increase 4% annually days

CAPEX (Special
Avg. Daily Hire Operating Maint. &
Calendar
Opt. Days
Event Year Ship Age
Rate
cost
Repair
Survey)
Year
2000
0
2001
1
2002
2
2003
3
1
20,000.00 $ 4,000.00
8
357
2004
4
2
20,200.00 $ 4,160.00
8
357
2005
5
3
20,400.00 $ 4,326.40
8
357
2006
6
4
18,714.00 $ 4,499.46
8
357
2007
7
5
17,283.00 $ 4,679.43
8
357 $ 300,000.00
2008
8
6
17,481.00 $ 4,866.61
12
353
2009
9
7
17,682.00 $ 5,061.28
12
353
2010
10
8
17,886.00 $ 5,263.73
12
353
2011
11
9
18,092.00 $ 5,474.28
12
353
2012
12
10
17,428.00 $ 5,693.25
12
353 $ 350,000.00
2013
13
11
17,628.00 $ 5,920.98
16
349
2014
14
12
17,831.00 $ 6,157.82
16
349
2015
15
13
18,036.00 $ 6,404.13
16
349
2016
16
14
18,243.00 $ 6,660.29
16
349
2017
17
15
14,762.00 $ 6,926.71
16
349 $ 750,000.00
2018
18
16
14,932.00 $ 7,203.77
16
349
2019
19
17
15,104.00 $ 7,491.92
16
349
2020
20
18
15,278.00 $ 7,791.60
16
349
2021
21
19
15,454.00 $ 8,103.27
16
349
2022
22
20
14,654.00 $ 8,427.40
16
349 $ 850,000.00
2023
23
21
14,823.00 $ 8,764.49
16
349
2024
24
22
14,993.00 $ 9,115.07
16
349
2025
25
23
15,166.00 $ 9,479.68
16
349
2026
26
24
15,341.00 $ 9,858.86
16
349
2027
27
25
13,448.00 $ 10,253.22
16
349 $
1,250,000.00

Discount Rate
9%

Avg. Daily Hire 365 days * Opt.
Rate * Opt. Days Cost
Depreciation of
Opt. Revenue
CAPEX

$
60,000.00
$
60,000.00
$
60,000.00
$
60,000.00
$
60,000.00
$
70,000.00
$
70,000.00
$
70,000.00
$
70,000.00
$
70,000.00
$ 150,000.00
$ 150,000.00
$ 150,000.00
$ 150,000.00
$ 150,000.00
$ 170,000.00
$ 170,000.00
$ 170,000.00
$ 170,000.00
$ 170,000.00
$ 250,000.00

$ 7,140,000.00
$ 7,211,400.00
$ 7,282,800.00
$ 6,680,898.00
$ 6,170,031.00
$ 6,170,793.00
$ 6,241,746.00
$ 6,313,758.00
$ 6,386,476.00
$ 6,152,084.00
$ 6,152,172.00
$ 6,223,019.00
$ 6,294,564.00
$ 6,366,807.00
$ 5,151,938.00
$ 5,211,268.00
$ 5,271,296.00
$ 5,332,022.00
$ 5,393,446.00
$ 5,114,246.00
$ 5,173,227.00
$ 5,232,557.00
$ 5,292,934.00
$ 5,354,009.00
$ 4,693,352.00

Opt. Cost

$ 1,460,000.00
$ 1,518,400.00
$ 1,579,136.00
$ 1,642,301.44
$ 1,707,993.50
$ 1,776,313.24
$ 1,847,365.77
$ 1,921,260.40
$ 1,998,110.81
$ 2,078,035.25
$ 2,161,156.66
$ 2,247,602.92
$ 2,337,507.04
$ 2,431,007.32
$ 2,528,247.61
$ 2,629,377.52
$ 2,734,552.62
$ 2,843,934.72
$ 2,957,692.11
$ 3,075,999.80
$ 3,199,039.79
$ 3,327,001.38
$ 3,460,081.44
$ 3,598,484.69
$ 3,742,424.08

Purchase Price /
25 yrs +
Depreciation of
CAPEX
Depreciation

$ 1,560,000.00
$ 1,560,000.00
$ 1,560,000.00
$ 1,560,000.00
$ 1,620,000.00
$ 1,620,000.00
$ 1,620,000.00
$ 1,620,000.00
$ 1,620,000.00
$ 1,630,000.00
$ 1,630,000.00
$ 1,630,000.00
$ 1,630,000.00
$ 1,630,000.00
$ 1,710,000.00
$ 1,710,000.00
$ 1,710,000.00
$ 1,710,000.00
$ 1,710,000.00
$ 1,730,000.00
$ 1,730,000.00
$ 1,730,000.00
$ 1,730,000.00
$ 1,730,000.00
$ 1,810,000.00

Net Income
(EAT) +
Depreciation

USA with 35%
Tax
EBIT

$ 4,120,000.00
$ 4,133,000.00
$ 4,143,664.00
$ 3,478,596.56
$ 2,842,037.50
$ 2,774,479.76
$ 2,774,380.23
$ 2,772,497.60
$ 2,768,365.19
$ 2,444,048.75
$ 2,361,015.34
$ 2,345,416.08
$ 2,327,056.96
$ 2,305,799.68
$
913,690.39
$
871,890.48
$
826,743.38
$
778,087.28
$
725,753.89
$
308,246.20
$
244,187.21
$
175,555.62
$
102,852.56
$ 25,524.31
‐$
859,072.08

Tax 35%

$ 1,442,000.00
$ 1,446,550.00
$ 1,450,282.40
$ 1,217,508.80
$
994,713.13
$
971,067.92
$
971,033.08
$
970,374.16
$
968,927.82
$
855,417.06
$
826,355.37
$
820,895.63
$
814,469.94
$
807,029.89
$
319,791.64
$
305,161.67
$
289,360.18
$
272,330.55
$
254,013.86
$
107,886.17
$ 85,465.52
$ 61,444.47
$ 35,998.40
$ 8,933.51
‐$
300,675.23

Net Income
(EAT)

$ 2,678,000.00
$ 2,686,450.00
$ 2,693,381.60
$ 2,261,087.76
$ 1,847,324.38
$ 1,803,411.85
$ 1,803,347.15
$ 1,802,123.44
$ 1,799,437.37
$ 1,588,631.69
$ 1,534,659.97
$ 1,524,520.45
$ 1,512,587.02
$ 1,498,769.79
$
593,898.75
$
566,728.81
$
537,383.20
$
505,756.73
$
471,740.03
$
200,360.03
$
158,721.69
$
114,111.15
$ 66,854.17
$ 16,590.80
‐$
558,396.85

Grow with inflation 3%

Towards the end of the project, the investment on
Working Cap recovered Initial Net
Opt. Cash Flow
Change in NWC NWC Recovery
Working Capital
$ ‐
$ ‐
$ ‐
‐$ 500,000.00
$ 4,238,000.00
‐$ 15,000.00
$ 4,246,450.00
‐$ 15,450.00
$ 4,253,381.60
‐$ 15,913.50
$ 3,821,087.76
‐$ 16,390.91
$ 3,467,324.38
‐$ 16,882.63
$ 3,423,411.85
‐$ 17,389.11
$ 3,423,347.15
‐$ 17,910.78
$ 3,422,123.44
‐$ 18,448.11
$ 3,419,437.37
‐$ 19,001.55
$ 3,218,631.69
‐$ 19,571.60
$ 3,164,659.97
‐$ 20,158.75
$ 3,154,520.45
‐$ 20,763.51
$ 3,142,587.02
‐$ 21,386.41
$ 3,128,769.79
‐$ 22,028.01
$ 2,303,898.75
‐$ 22,688.85
$ 2,276,728.81
‐$ 23,369.51
$ 2,247,383.20
‐$ 24,070.60
$ 2,215,756.73
‐$ 24,792.71
$ 2,181,740.03
‐$ 25,536.50
$ 1,930,360.03
‐$ 26,302.59
$ 1,888,721.69
‐$ 27,091.67
$ 1,844,111.15
‐$ 27,904.42
$ 1,796,854.17
‐$ 28,741.55
$ 1,746,590.80
‐$ 29,603.80
$ 1,251,603.15
‐$ 30,491.91 $ 1,046,888.96

25 yrs No Salvage.
15 yrs 5M Salvage.
Total Change in
NWC

‐$ 500,000.00
‐$ 15,000.00
‐$ 15,450.00
‐$ 15,913.50
‐$ 16,390.91
‐$ 16,882.63
‐$ 17,389.11
‐$ 17,910.78
‐$ 18,448.11
‐$ 19,001.55
‐$ 19,571.60
‐$ 20,158.75
‐$ 20,763.51
‐$ 21,386.41
‐$ 22,028.01
‐$ 22,688.85
‐$ 23,369.51
‐$ 24,070.60
‐$ 24,792.71
‐$ 25,536.50
‐$ 26,302.59
‐$ 27,091.67
‐$ 27,904.42
‐$ 28,741.55
‐$ 29,603.80
$ 1,016,397.05

Accumulated
NWC

‐$
500,000.00
‐$
515,000.00
‐$
530,450.00
‐$
546,363.50
‐$
562,754.41
‐$
579,637.04
‐$
597,026.15
‐$
614,936.93
‐$
633,385.04
‐$
652,386.59
‐$
671,958.19
‐$
692,116.94
‐$
712,880.44
‐$
734,266.86
‐$
756,294.86
‐$
778,983.71
‐$
802,353.22
‐$
826,423.82
‐$
851,216.53
‐$
876,753.03
‐$
903,055.62
‐$
930,147.29
‐$
958,051.70
‐$
986,793.26
‐$ 1,016,397.05
‐$ 1,046,888.96

Initial outlay
‐$ 3,900,000.00
‐$ 3,900,000.00
‐$
31,200,000.00
$

$

$

$

‐$ 300,000.00
$

$

$

$

‐$ 350,000.00
$

$

$

$

‐$ 750,000.00
$

$

$

$

‐$ 850,000.00
$

$

$

$

‐$ 1,250,000.00

After Tax Salvage Capital Spending Opt. Cash Flow Change in NWC Capital Spending
‐$
3,900,000.00
‐$
3,900,000.00
‐$ 31,200,000.00
$ ‐
$ ‐
$ ‐
$ ‐
‐$ 300,000.00
$ ‐
$ ‐
$ ‐
$ ‐
‐$ 350,000.00
$ ‐
$ ‐
$ ‐
$ ‐
‐$ 750,000.00
$ ‐
$ ‐
$ ‐
$ ‐
‐$ 850,000.00
$ ‐
$ ‐
$ ‐
$ ‐
‐$
1,250,000.00

$ 4,238,000.00
$ 4,246,450.00
$ 4,253,381.60
$ 3,821,087.76
$ 3,467,324.38
$ 3,423,411.85
$ 3,423,347.15
$ 3,422,123.44
$ 3,419,437.37
$ 3,218,631.69
$ 3,164,659.97
$ 3,154,520.45
$ 3,142,587.02
$ 3,128,769.79
$ 2,303,898.75
$ 2,276,728.81
$ 2,247,383.20
$ 2,215,756.73
$ 2,181,740.03
$ 1,930,360.03
$ 1,888,721.69
$ 1,844,111.15
$ 1,796,854.17
$ 1,746,590.80
$ 1,251,603.15

‐$
500,000.00
‐$ 15,000.00
‐$ 15,450.00
‐$ 15,913.50
‐$ 16,390.91
‐$ 16,882.63
‐$ 17,389.11
‐$ 17,910.78
‐$ 18,448.11
‐$ 19,001.55
‐$ 19,571.60
‐$ 20,158.75
‐$ 20,763.51
‐$ 21,386.41
‐$ 22,028.01
‐$ 22,688.85
‐$ 23,369.51
‐$ 24,070.60
‐$ 24,792.71
‐$ 25,536.50
‐$ 26,302.59
‐$ 27,091.67
‐$ 27,904.42
‐$ 28,741.55
‐$ 29,603.80
$ 1,016,397.05

‐$
3,900,000.00
‐$
3,900,000.00
‐$ 31,200,000.00
$ ‐
$ ‐
$ ‐
$ ‐
‐$ 300,000.00
$ ‐
$ ‐
$ ‐
$ ‐
‐$ 350,000.00
$ ‐
$ ‐
$ ‐
$ ‐
‐$ 750,000.00
$ ‐
$ ‐
$ ‐
$ ‐
‐$ 850,000.00
$ ‐
$ ‐
$ ‐
$ ‐
‐$
1,250,000.00

Total Project Cash Cummulative
Flow
Cash Flow
‐$
3,900,000.00 ‐$
3,900,000.00
‐$
3,900,000.00 ‐$
7,800,000.00
‐$ 31,700,000.00 ‐$ 39,500,000.00
$
4,223,000.00 ‐$ 35,277,000.00
$
4,231,000.00 ‐$ 31,046,000.00
$
4,237,468.10 ‐$ 26,808,531.90
$
3,804,696.86 ‐$ 23,003,835.04
$
3,150,441.74 ‐$ 19,853,393.30
$
3,406,022.73 ‐$ 16,447,370.56
$
3,405,436.37 ‐$ 13,041,934.20
$
3,403,675.33 ‐$
9,638,258.86
$
3,400,435.82 ‐$
6,237,823.04
$
2,849,060.09 ‐$
3,388,762.95
$
3,144,501.23 ‐$ 244,261.72
$
3,133,756.94 $
2,889,495.22
$
3,121,200.61 $
6,010,695.83
$
3,106,741.79 $
9,117,437.62
$
1,531,209.91 $ 10,648,647.52
$
2,253,359.30 $ 12,902,006.83
$
2,223,312.60 $ 15,125,319.43
$
2,190,964.02 $ 17,316,283.44
$
2,156,203.53 $ 19,472,486.97
$
1,054,057.44 $ 20,526,544.41
$
1,861,630.02 $ 22,388,174.43
$
1,816,206.73 $ 24,204,381.17
$
1,768,112.62 $ 25,972,493.78
$
1,716,987.00 $ 27,689,480.78
$
1,018,000.20 $ 28,707,480.99
Discount Rate
NPV
IRR

Discounted Cash
Flow (12%)

$
3,874,311.93
$
3,561,148.05
$
3,272,102.86
$
2,695,343.18
$
2,047,570.97
$
2,030,900.07
$
1,862,890.31
$
1,708,189.88
$
1,565,655.11
$
1,203,473.77
$
1,218,597.52
$
1,114,159.41
$
1,018,068.99
$ 929,681.50
$ 420,375.37
$ 567,553.07
$ 513,747.91
$ 464,470.66
$ 419,359.31
$ 188,076.41
$ 304,745.23
$ 272,761.03
$ 243,613.01
$ 217,035.64
$ 118,055.28
9%
‐$
7,668,113.53
5.77%

US 35% TAX ‐ 15 years

Inflation
Purchase Price
Initial Investment
Scrap after 15 yrs

Annual
Escalation
$200

3%
$39,000,000.00
$500,000.00
$5,000,000.00

Increase 4% annually days

CAPEX (Special
Avg. Daily Hire Operating Maint. &
Calendar
Opt. Days
Event Year Ship Age
Rate
cost
Repair
Survey)
Year
2000
0
2001
1
2002
2
2003
3
1
20,000.00 $ 4,000.00
8
357
2004
4
2
20,200.00 $ 4,160.00
8
357
2005
5
3
20,400.00 $ 4,326.40
8
357
2006
6
4
18,714.00 $ 4,499.46
8
357
2007
7
5
17,283.00 $ 4,679.43
8
357 $ 300,000.00
2008
8
6
17,481.00 $ 4,866.61
12
353
2009
9
7
17,682.00 $ 5,061.28
12
353
2010
10
8
17,886.00 $ 5,263.73
12
353
2011
11
9
18,092.00 $ 5,474.28
12
353
2012
12
10
17,428.00 $ 5,693.25
12
353 $ 350,000.00
2013
13
11
17,628.00 $ 5,920.98
16
349
2014
14
12
17,831.00 $ 6,157.82
16
349
2015
15
13
18,036.00 $ 6,404.13
16
349
2016
16
14
18,243.00 $ 6,660.29
16
349
2017
17
15
14,762.00 $ 6,926.71
16
349

Discount Rate
9%

Avg. Daily Hire 365 days * Opt.
Rate * Opt. Days Cost
Depreciation of
CAPEX

$
60,000.00
$
60,000.00
$
60,000.00
$
60,000.00
$
60,000.00
$
70,000.00
$
70,000.00
$
70,000.00
$
70,000.00
$
70,000.00
$


Opt. Revenue

$ 7,140,000.00
$ 7,211,400.00
$ 7,282,800.00
$ 6,680,898.00
$ 6,170,031.00
$ 6,170,793.00
$ 6,241,746.00
$ 6,313,758.00
$ 6,386,476.00
$ 6,152,084.00
$ 6,152,172.00
$ 6,223,019.00
$ 6,294,564.00
$ 6,366,807.00
$ 5,151,938.00

Opt. Cost

$ 1,460,000.00
$ 1,518,400.00
$ 1,579,136.00
$ 1,642,301.44
$ 1,707,993.50
$ 1,776,313.24
$ 1,847,365.77
$ 1,921,260.40
$ 1,998,110.81
$ 2,078,035.25
$ 2,161,156.66
$ 2,247,602.92
$ 2,337,507.04
$ 2,431,007.32
$ 2,528,247.61

Purchase Price /
15 yrs +
Depreciation of
CAPEX
Depreciation

$ 1,560,000.00
$ 1,560,000.00
$ 1,560,000.00
$ 1,560,000.00
$ 1,620,000.00
$ 1,620,000.00
$ 1,620,000.00
$ 1,620,000.00
$ 1,620,000.00
$ 1,630,000.00
$ 1,630,000.00
$ 1,630,000.00
$ 1,630,000.00
$ 1,630,000.00
$ 1,560,000.00

Net Income
(EAT) +
Depreciation

USA with 35%
Tax
EBIT

$ 4,120,000.00
$ 4,133,000.00
$ 4,143,664.00
$ 3,478,596.56
$ 2,842,037.50
$ 2,774,479.76
$ 2,774,380.23
$ 2,772,497.60
$ 2,768,365.19
$ 2,444,048.75
$ 2,361,015.34
$ 2,345,416.08
$ 2,327,056.96
$ 2,305,799.68
$ 1,063,690.39

Tax 35%

$ 1,442,000.00
$ 1,446,550.00
$ 1,450,282.40
$ 1,217,508.80
$
994,713.13
$
971,067.92
$
971,033.08
$
970,374.16
$
968,927.82
$
855,417.06
$
826,355.37
$
820,895.63
$
814,469.94
$
807,029.89
$
372,291.64

Net Income
(EAT)

$ 2,678,000.00
$ 2,686,450.00
$ 2,693,381.60
$ 2,261,087.76
$ 1,847,324.38
$ 1,803,411.85
$ 1,803,347.15
$ 1,802,123.44
$ 1,799,437.37
$ 1,588,631.69
$ 1,534,659.97
$ 1,524,520.45
$ 1,512,587.02
$ 1,498,769.79
$
691,398.75

Grow with inflation 3%

Towards the end of the project, the investment on
Working Cap recovered Initial Net
Opt. Cash Flow
Change in NWC NWC Recovery
Working Capital
$ ‐
$ ‐
$ ‐
‐$ 500,000.00
$ 4,238,000.00
‐$ 15,000.00
$ 4,246,450.00
‐$ 15,450.00
$ 4,253,381.60
‐$ 15,913.50
$ 3,821,087.76
‐$ 16,390.91
$ 3,467,324.38
‐$ 16,882.63
$ 3,423,411.85
‐$ 17,389.11
$ 3,423,347.15
‐$ 17,910.78
$ 3,422,123.44
‐$ 18,448.11
$ 3,419,437.37
‐$ 19,001.55
$ 3,218,631.69
‐$ 19,571.60
$ 3,164,659.97
‐$ 20,158.75
$ 3,154,520.45
‐$ 20,763.51
$ 3,142,587.02
‐$ 21,386.41
$ 3,128,769.79
‐$ 22,028.01
$ 2,251,398.75
‐$ 22,688.85 $
778,983.71

25 yrs No Salvage.
15 yrs 5M Salvage.
Total Change in
NWC

‐$ 500,000.00
‐$ 15,000.00
‐$ 15,450.00
‐$ 15,913.50
‐$ 16,390.91
‐$ 16,882.63
‐$ 17,389.11
‐$ 17,910.78
‐$ 18,448.11
‐$ 19,001.55
‐$ 19,571.60
‐$ 20,158.75
‐$ 20,763.51
‐$ 21,386.41
‐$ 22,028.01
$ 756,294.86

Accumulated
NWC

‐$
500,000.00
‐$
515,000.00
‐$
530,450.00
‐$
546,363.50
‐$
562,754.41
‐$
579,637.04
‐$
597,026.15
‐$
614,936.93
‐$
633,385.04
‐$
652,386.59
‐$
671,958.19
‐$
692,116.94
‐$
712,880.44
‐$
734,266.86
‐$
756,294.86
‐$
778,983.71

Initial outlay

After Tax Salvage Capital Spending Opt. Cash Flow Change in NWC Capital Spending

‐$ 3,900,000.00
‐$ 3,900,000.00
‐$
31,200,000.00
$

$

$

$

‐$ 300,000.00
$

$

$

$

‐$ 350,000.00
$

$

$

$

$

$
8,710,000.00

‐$
3,900,000.00
‐$
3,900,000.00
‐$ 31,200,000.00
$ ‐
$ ‐
$ ‐
$ ‐
‐$ 300,000.00
$ ‐
$ ‐
$ ‐
$ ‐
‐$ 350,000.00
$ ‐
$ ‐
$ ‐
$ ‐
$
8,710,000.00

$ 4,238,000.00
$ 4,246,450.00
$ 4,253,381.60
$ 3,821,087.76
$ 3,467,324.38
$ 3,423,411.85
$ 3,423,347.15
$ 3,422,123.44
$ 3,419,437.37
$ 3,218,631.69
$ 3,164,659.97
$ 3,154,520.45
$ 3,142,587.02
$ 3,128,769.79
$ 2,251,398.75

‐$
500,000.00
‐$ 15,000.00
‐$ 15,450.00
‐$ 15,913.50
‐$ 16,390.91
‐$ 16,882.63
‐$ 17,389.11
‐$ 17,910.78
‐$ 18,448.11
‐$ 19,001.55
‐$ 19,571.60
‐$ 20,158.75
‐$ 20,763.51
‐$ 21,386.41
‐$ 22,028.01
$
756,294.86

‐$
3,900,000.00
‐$
3,900,000.00
‐$ 31,200,000.00
$ ‐
$ ‐
$ ‐
$ ‐
‐$ 300,000.00
$ ‐
$ ‐
$ ‐
$ ‐
‐$ 350,000.00
$ ‐
$ ‐
$ ‐
$ ‐
$
8,710,000.00

Total Project Cash Cummulative
Flow
Cash Flow
‐$
3,900,000.00 ‐$
3,900,000.00
‐$
3,900,000.00 ‐$
7,800,000.00
‐$ 31,700,000.00 ‐$ 39,500,000.00
$
4,223,000.00 ‐$ 35,277,000.00
$
4,231,000.00 ‐$ 31,046,000.00
$
4,237,468.10 ‐$ 26,808,531.90
$
3,804,696.86 ‐$ 23,003,835.04
$
3,150,441.74 ‐$ 19,853,393.30
$
3,406,022.73 ‐$ 16,447,370.56
$
3,405,436.37 ‐$ 13,041,934.20
$
3,403,675.33 ‐$
9,638,258.86
$
3,400,435.82 ‐$
6,237,823.04
$
2,849,060.09 ‐$
3,388,762.95
$
3,144,501.23 ‐$ 244,261.72
$
3,133,756.94 $
2,889,495.22
$
3,121,200.61 $
6,010,695.83
$
3,106,741.79 $
9,117,437.62
$ 11,717,693.61 $ 20,835,131.23
Discount Rate
NPV
IRR

Discounted Cash
Flow (12%)

$
3,874,311.93
$
3,561,148.05
$
3,272,102.86
$
2,695,343.18
$
2,047,570.97
$
2,030,900.07
$
1,862,890.31
$
1,708,189.88
$
1,565,655.11
$
1,203,473.77
$
1,218,597.52
$
1,114,159.41
$
1,018,068.99
$ 929,681.50
$
3,216,952.65
9%
‐$
8,180,953.79
5.23%

HK NO TAX ‐ 25 years

Inflation

3%

Purchase Price
$39,000,000.00
Initial Investment
$500,000.00
Scrap after 15 yrs $5,000,000.00

Annual
Escalation
$200

Increase 4% annually days

CAPEX (Special
Avg. Daily Hire Operating Maint. &
Calendar
Opt. Days
Event Year Ship Age
Rate
cost
Repair
Survey)
Year
2000
0
2001
1
2002
2
2003
3
1
20,000.00 $ 4,000.00
8
357
2004
4
2
20,200.00 $ 4,160.00
8
357
2005
5
3
20,400.00 $ 4,326.40
8
357
2006
6
4
18,714.00 $ 4,499.46
8
357
2007
7
5
17,283.00 $ 4,679.43
8
357 $ 300,000.00
2008
8
6
17,481.00 $ 4,866.61
12
353
2009
9
7
17,682.00 $ 5,061.28
12
353
2010
10
8
17,886.00 $ 5,263.73
12
353
2011
11
9
18,092.00 $ 5,474.28
12
353
2012
12
10
17,428.00 $ 5,693.25
12
353 $ 350,000.00
2013
13
11
17,628.00 $ 5,920.98
16
349
2014
14
12
17,831.00 $ 6,157.82
16
349
2015
15
13
18,036.00 $ 6,404.13
16
349
2016
16
14
18,243.00 $ 6,660.29
16
349
2017
17
15
14,762.00 $ 6,926.71
16
349 $ 750,000.00
2018
18
16
14,932.00 $ 7,203.77
16
349
2019
19
17
15,104.00 $ 7,491.92
16
349
2020
20
18
15,278.00 $ 7,791.60
16
349
2021
21
19
15,454.00 $ 8,103.27
16
349
2022
22
20
14,654.00 $ 8,427.40
16
349 $ 850,000.00
2023
23
21
14,823.00 $ 8,764.49
16
349
2024
24
22
14,993.00 $ 9,115.07
16
349
2025
25
23
15,166.00 $ 9,479.68
16
349
2026
26
24
15,341.00 $ 9,858.86
16
349
2027
27
25
13,448.00 $ 10,253.22
16
349 $
1,250,000.00

Discount Rate
9%

Avg. Daily Hire 365 days * Opt.
Rate * Opt. Days Cost
Depreciation of
Opt. Revenue
CAPEX

$
60,000.00
$
60,000.00
$
60,000.00
$
60,000.00
$
60,000.00
$
70,000.00
$
70,000.00
$
70,000.00
$
70,000.00
$
70,000.00
$ 150,000.00
$ 150,000.00
$ 150,000.00
$ 150,000.00
$ 150,000.00
$ 170,000.00
$ 170,000.00
$ 170,000.00
$ 170,000.00
$ 170,000.00
$ 250,000.00

$ 7,140,000.00
$ 7,211,400.00
$ 7,282,800.00
$ 6,680,898.00
$ 6,170,031.00
$ 6,170,793.00
$ 6,241,746.00
$ 6,313,758.00
$ 6,386,476.00
$ 6,152,084.00
$ 6,152,172.00
$ 6,223,019.00
$ 6,294,564.00
$ 6,366,807.00
$ 5,151,938.00
$ 5,211,268.00
$ 5,271,296.00
$ 5,332,022.00
$ 5,393,446.00
$ 5,114,246.00
$ 5,173,227.00
$ 5,232,557.00
$ 5,292,934.00
$ 5,354,009.00
$ 4,693,352.00

Opt. Cost

$ 1,460,000.00
$ 1,518,400.00
$ 1,579,136.00
$ 1,642,301.44
$ 1,707,993.50
$ 1,776,313.24
$ 1,847,365.77
$ 1,921,260.40
$ 1,998,110.81
$ 2,078,035.25
$ 2,161,156.66
$ 2,247,602.92
$ 2,337,507.04
$ 2,431,007.32
$ 2,528,247.61
$ 2,629,377.52
$ 2,734,552.62
$ 2,843,934.72
$ 2,957,692.11
$ 3,075,999.80
$ 3,199,039.79
$ 3,327,001.38
$ 3,460,081.44
$ 3,598,484.69
$ 3,742,424.08

Purchase Price /
25 yrs +
Depreciation of
CAPEX
Depreciation

$ 1,560,000.00
$ 1,560,000.00
$ 1,560,000.00
$ 1,560,000.00
$ 1,620,000.00
$ 1,620,000.00
$ 1,620,000.00
$ 1,620,000.00
$ 1,620,000.00
$ 1,630,000.00
$ 1,630,000.00
$ 1,630,000.00
$ 1,630,000.00
$ 1,630,000.00
$ 1,710,000.00
$ 1,710,000.00
$ 1,710,000.00
$ 1,710,000.00
$ 1,710,000.00
$ 1,730,000.00
$ 1,730,000.00
$ 1,730,000.00
$ 1,730,000.00
$ 1,730,000.00
$ 1,810,000.00

Net Income
(EAT) +
Depreciation

USA with 35%
Tax
EBIT

$ 4,120,000.00
$ 4,133,000.00
$ 4,143,664.00
$ 3,478,596.56
$ 2,842,037.50
$ 2,774,479.76
$ 2,774,380.23
$ 2,772,497.60
$ 2,768,365.19
$ 2,444,048.75
$ 2,361,015.34
$ 2,345,416.08
$ 2,327,056.96
$ 2,305,799.68
$
913,690.39
$
871,890.48
$
826,743.38
$
778,087.28
$
725,753.89
$
308,246.20
$
244,187.21
$
175,555.62
$
102,852.56
$ 25,524.31
‐$
859,072.08

Tax 35%

$ ‐
$ ‐
$ ‐
$ ‐
$ ‐
$ ‐
$ ‐
$ ‐
$ ‐
$ ‐
$ ‐
$ ‐
$ ‐
$ ‐
$ ‐
$ ‐
$ ‐
$ ‐
$ ‐
$ ‐
$ ‐
$ ‐
$ ‐
$ ‐
$ ‐

Net Income
(EAT)

$ 4,120,000.00
$ 4,133,000.00
$ 4,143,664.00
$ 3,478,596.56
$ 2,842,037.50
$ 2,774,479.76
$ 2,774,380.23
$ 2,772,497.60
$ 2,768,365.19
$ 2,444,048.75
$ 2,361,015.34
$ 2,345,416.08
$ 2,327,056.96
$ 2,305,799.68
$
913,690.39
$
871,890.48
$
826,743.38
$
778,087.28
$
725,753.89
$
308,246.20
$
244,187.21
$
175,555.62
$
102,852.56
$ 25,524.31
‐$
859,072.08

Grow with inflation 3%

Towards the end of the project, the investment on
Working Cap recovered Initial Net
Opt. Cash Flow
Change in NWC NWC Recovery
Working Capital
$ ‐
$ ‐
$ ‐
‐$ 500,000.00
$ 5,680,000.00
‐$ 15,000.00
$ 5,693,000.00
‐$ 15,450.00
$ 5,703,664.00
‐$ 15,913.50
$ 5,038,596.56
‐$ 16,390.91
$ 4,462,037.50
‐$ 16,882.63
$ 4,394,479.76
‐$ 17,389.11
$ 4,394,380.23
‐$ 17,910.78
$ 4,392,497.60
‐$ 18,448.11
$ 4,388,365.19
‐$ 19,001.55
$ 4,074,048.75
‐$ 19,571.60
$ 3,991,015.34
‐$ 20,158.75
$ 3,975,416.08
‐$ 20,763.51
$ 3,957,056.96
‐$ 21,386.41
$ 3,935,799.68
‐$ 22,028.01
$ 2,623,690.39
‐$ 22,688.85
$ 2,581,890.48
‐$ 23,369.51
$ 2,536,743.38
‐$ 24,070.60
$ 2,488,087.28
‐$ 24,792.71
$ 2,435,753.89
‐$ 25,536.50
$ 2,038,246.20
‐$ 26,302.59
$ 1,974,187.21
‐$ 27,091.67
$ 1,905,555.62
‐$ 27,904.42
$ 1,832,852.56
‐$ 28,741.55
$ 1,755,524.31
‐$ 29,603.80
$
950,927.92
‐$ 30,491.91 $ 1,046,888.96

25 yrs No Salvage.
15 yrs 5M Salvage.
Total Change in
NWC

‐$ 500,000.00
‐$ 15,000.00
‐$ 15,450.00
‐$ 15,913.50
‐$ 16,390.91
‐$ 16,882.63
‐$ 17,389.11
‐$ 17,910.78
‐$ 18,448.11
‐$ 19,001.55
‐$ 19,571.60
‐$ 20,158.75
‐$ 20,763.51
‐$ 21,386.41
‐$ 22,028.01
‐$ 22,688.85
‐$ 23,369.51
‐$ 24,070.60
‐$ 24,792.71
‐$ 25,536.50
‐$ 26,302.59
‐$ 27,091.67
‐$ 27,904.42
‐$ 28,741.55
‐$ 29,603.80
$ 1,016,397.05

Accumulated
NWC

‐$
500,000.00
‐$
515,000.00
‐$
530,450.00
‐$
546,363.50
‐$
562,754.41
‐$
579,637.04
‐$
597,026.15
‐$
614,936.93
‐$
633,385.04
‐$
652,386.59
‐$
671,958.19
‐$
692,116.94
‐$
712,880.44
‐$
734,266.86
‐$
756,294.86
‐$
778,983.71
‐$
802,353.22
‐$
826,423.82
‐$
851,216.53
‐$
876,753.03
‐$
903,055.62
‐$
930,147.29
‐$
958,051.70
‐$
986,793.26
‐$ 1,016,397.05
‐$ 1,046,888.96

Initial outlay
‐$ 3,900,000.00
‐$ 3,900,000.00
‐$
31,200,000.00
$

$

$

$

‐$ 300,000.00
$

$

$

$

‐$ 350,000.00
$

$

$

$

‐$ 750,000.00
$

$

$

$

‐$ 850,000.00
$

$

$

$

‐$ 1,250,000.00

After Tax Salvage Capital Spending Opt. Cash Flow Change in NWC Capital Spending
‐$
3,900,000.00
‐$
3,900,000.00
‐$ 31,200,000.00
$ ‐
$ ‐
$ ‐
$ ‐
‐$ 300,000.00
$ ‐
$ ‐
$ ‐
$ ‐
‐$ 350,000.00
$ ‐
$ ‐
$ ‐
$ ‐
‐$ 750,000.00
$ ‐
$ ‐
$ ‐
$ ‐
‐$ 850,000.00
$ ‐
$ ‐
$ ‐
$ ‐
‐$
1,250,000.00

$ 5,680,000.00
$ 5,693,000.00
$ 5,703,664.00
$ 5,038,596.56
$ 4,462,037.50
$ 4,394,479.76
$ 4,394,380.23
$ 4,392,497.60
$ 4,388,365.19
$ 4,074,048.75
$ 3,991,015.34
$ 3,975,416.08
$ 3,957,056.96
$ 3,935,799.68
$ 2,623,690.39
$ 2,581,890.48
$ 2,536,743.38
$ 2,488,087.28
$ 2,435,753.89
$ 2,038,246.20
$ 1,974,187.21
$ 1,905,555.62
$ 1,832,852.56
$ 1,755,524.31
$
950,927.92

‐$
500,000.00
‐$ 15,000.00
‐$ 15,450.00
‐$ 15,913.50
‐$ 16,390.91
‐$ 16,882.63
‐$ 17,389.11
‐$ 17,910.78
‐$ 18,448.11
‐$ 19,001.55
‐$ 19,571.60
‐$ 20,158.75
‐$ 20,763.51
‐$ 21,386.41
‐$ 22,028.01
‐$ 22,688.85
‐$ 23,369.51
‐$ 24,070.60
‐$ 24,792.71
‐$ 25,536.50
‐$ 26,302.59
‐$ 27,091.67
‐$ 27,904.42
‐$ 28,741.55
‐$ 29,603.80
$ 1,016,397.05

‐$
3,900,000.00
‐$
3,900,000.00
‐$ 31,200,000.00
$ ‐
$ ‐
$ ‐
$ ‐
‐$ 300,000.00
$ ‐
$ ‐
$ ‐
$ ‐
‐$ 350,000.00
$ ‐
$ ‐
$ ‐
$ ‐
‐$ 750,000.00
$ ‐
$ ‐
$ ‐
$ ‐
‐$ 850,000.00
$ ‐
$ ‐
$ ‐
$ ‐
‐$
1,250,000.00

Total Project Cash Cummulative
Flow
Cash Flow
‐$
3,900,000.00 ‐$
3,900,000.00
‐$
3,900,000.00 ‐$
7,800,000.00
‐$ 31,700,000.00 ‐$ 39,500,000.00
$
5,665,000.00 ‐$ 33,835,000.00
$
5,677,550.00 ‐$ 28,157,450.00
$
5,687,750.50 ‐$ 22,469,699.50
$
5,022,205.66 ‐$ 17,447,493.85
$
4,145,154.87 ‐$ 13,302,338.97
$
4,377,090.65 ‐$
8,925,248.32
$
4,376,469.45 ‐$
4,548,778.87
$
4,374,049.49 ‐$ 174,729.38
$
4,369,363.64 $
4,194,634.25
$
3,704,477.16 $
7,899,111.41
$
3,970,856.60 $ 11,869,968.01
$
3,954,652.57 $ 15,824,620.58
$
3,935,670.55 $ 19,760,291.13
$
3,913,771.67 $ 23,674,062.80
$
1,851,001.54 $ 25,525,064.34
$
2,558,520.97 $ 28,083,585.31
$
2,512,672.78 $ 30,596,258.10
$
2,463,294.56 $ 33,059,552.66
$
2,410,217.39 $ 35,469,770.05
$
1,161,943.61 $ 36,631,713.66
$
1,947,095.54 $ 38,578,809.20
$
1,877,651.20 $ 40,456,460.41
$
1,804,111.01 $ 42,260,571.42
$
1,725,920.51 $ 43,986,491.93
$ 717,324.97 $ 44,703,816.90
Discount Rate
NPV
IRR

Discounted Cash
Flow (12%)

$
5,197,247.71
$
4,778,680.25
$
4,391,986.97
$
3,557,857.10
$
2,694,066.25
$
2,609,916.14
$
2,394,078.66
$
2,195,187.95
$
2,011,776.40
$
1,564,811.18
$
1,538,837.38
$
1,406,016.31
$
1,283,731.69
$
1,171,182.34
$ 508,170.34
$ 644,414.07
$ 580,611.28
$ 522,203.03
$ 468,762.38
$ 207,326.63
$ 318,735.77
$ 281,988.87
$ 248,572.91
$ 218,164.88
$ 83,186.62
9%
$
1,377,513.12
9.11%

HK NO TAX ‐ 15 years

Inflation

3%

Purchase Price
$39,000,000.00
Initial Investment
$500,000.00
Scrap after 15 yrs $5,000,000.00

Annual
Escalation
$200

Increase 4% annually days

CAPEX (Special
Avg. Daily Hire Operating Maint. &
Calendar
Opt. Days
Event Year Ship Age
Rate
cost
Repair
Survey)
Year
2000
0
2001
1
2002
2
2003
3
1
20,000.00 $ 4,000.00
8
357
2004
4
2
20,200.00 $ 4,160.00
8
357
2005
5
3
20,400.00 $ 4,326.40
8
357
2006
6
4
18,714.00 $ 4,499.46
8
357
2007
7
5
17,283.00 $ 4,679.43
8
357 $ 300,000.00
2008
8
6
17,481.00 $ 4,866.61
12
353
2009
9
7
17,682.00 $ 5,061.28
12
353
2010
10
8
17,886.00 $ 5,263.73
12
353
2011
11
9
18,092.00 $ 5,474.28
12
353
2012
12
10
17,428.00 $ 5,693.25
12
353 $ 350,000.00
2013
13
11
17,628.00 $ 5,920.98
16
349
2014
14
12
17,831.00 $ 6,157.82
16
349
2015
15
13
18,036.00 $ 6,404.13
16
349
2016
16
14
18,243.00 $ 6,660.29
16
349
2017
17
15
14,762.00 $ 6,926.71
16
349

Discount Rate
9%

Avg. Daily Hire 365 days * Opt.
Rate * Opt. Days Cost
Depreciation of
Opt. Revenue
CAPEX

$
60,000.00
$
60,000.00
$
60,000.00
$
60,000.00
$
60,000.00
$
70,000.00
$
70,000.00
$
70,000.00
$
70,000.00
$
70,000.00
$


$ 7,140,000.00
$ 7,211,400.00
$ 7,282,800.00
$ 6,680,898.00
$ 6,170,031.00
$ 6,170,793.00
$ 6,241,746.00
$ 6,313,758.00
$ 6,386,476.00
$ 6,152,084.00
$ 6,152,172.00
$ 6,223,019.00
$ 6,294,564.00
$ 6,366,807.00
$ 5,151,938.00

Opt. Cost

$ 1,460,000.00
$ 1,518,400.00
$ 1,579,136.00
$ 1,642,301.44
$ 1,707,993.50
$ 1,776,313.24
$ 1,847,365.77
$ 1,921,260.40
$ 1,998,110.81
$ 2,078,035.25
$ 2,161,156.66
$ 2,247,602.92
$ 2,337,507.04
$ 2,431,007.32
$ 2,528,247.61

Purchase Price /
15 yrs +
Depreciation of
CAPEX
Depreciation

$ 1,560,000.00
$ 1,560,000.00
$ 1,560,000.00
$ 1,560,000.00
$ 1,620,000.00
$ 1,620,000.00
$ 1,620,000.00
$ 1,620,000.00
$ 1,620,000.00
$ 1,630,000.00
$ 1,630,000.00
$ 1,630,000.00
$ 1,630,000.00
$ 1,630,000.00
$ 1,560,000.00

Net Income
(EAT) +
Depreciation

USA with 35%
Tax
EBIT

$ 4,120,000.00
$ 4,133,000.00
$ 4,143,664.00
$ 3,478,596.56
$ 2,842,037.50
$ 2,774,479.76
$ 2,774,380.23
$ 2,772,497.60
$ 2,768,365.19
$ 2,444,048.75
$ 2,361,015.34
$ 2,345,416.08
$ 2,327,056.96
$ 2,305,799.68
$ 1,063,690.39

Tax 35%

$ ‐
$ ‐
$ ‐
$ ‐
$ ‐
$ ‐
$ ‐
$ ‐
$ ‐
$ ‐
$ ‐
$ ‐
$ ‐
$ ‐
$ ‐

Net Income
(EAT)

$ 4,120,000.00
$ 4,133,000.00
$ 4,143,664.00
$ 3,478,596.56
$ 2,842,037.50
$ 2,774,479.76
$ 2,774,380.23
$ 2,772,497.60
$ 2,768,365.19
$ 2,444,048.75
$ 2,361,015.34
$ 2,345,416.08
$ 2,327,056.96
$ 2,305,799.68
$ 1,063,690.39

Grow with inflation 3%

Towards the end of the project, the investment on
Working Cap recovered Initial Net
Opt. Cash Flow
Change in NWC NWC Recovery
Working Capital
$ ‐
$ ‐
$ ‐
‐$ 500,000.00
$ 5,680,000.00
‐$ 15,000.00
$ 5,693,000.00
‐$ 15,450.00
$ 5,703,664.00
‐$ 15,913.50
$ 5,038,596.56
‐$ 16,390.91
$ 4,462,037.50
‐$ 16,882.63
$ 4,394,479.76
‐$ 17,389.11
$ 4,394,380.23
‐$ 17,910.78
$ 4,392,497.60
‐$ 18,448.11
$ 4,388,365.19
‐$ 19,001.55
$ 4,074,048.75
‐$ 19,571.60
$ 3,991,015.34
‐$ 20,158.75
$ 3,975,416.08
‐$ 20,763.51
$ 3,957,056.96
‐$ 21,386.41
$ 3,935,799.68
‐$ 22,028.01
$ 2,623,690.39
‐$ 22,688.85 $
778,983.71

25 yrs No Salvage.
15 yrs 5M Salvage.
Total Change in
NWC

‐$ 500,000.00
‐$ 15,000.00
‐$ 15,450.00
‐$ 15,913.50
‐$ 16,390.91
‐$ 16,882.63
‐$ 17,389.11
‐$ 17,910.78
‐$ 18,448.11
‐$ 19,001.55
‐$ 19,571.60
‐$ 20,158.75
‐$ 20,763.51
‐$ 21,386.41
‐$ 22,028.01
$ 756,294.86

Accumulated
NWC

‐$
500,000.00
‐$
515,000.00
‐$
530,450.00
‐$
546,363.50
‐$
562,754.41
‐$
579,637.04
‐$
597,026.15
‐$
614,936.93
‐$
633,385.04
‐$
652,386.59
‐$
671,958.19
‐$
692,116.94
‐$
712,880.44
‐$
734,266.86
‐$
756,294.86
‐$
778,983.71

Initial outlay

After Tax Salvage Capital Spending Opt. Cash Flow Change in NWC Capital Spending

‐$ 3,900,000.00
‐$ 3,900,000.00
‐$
31,200,000.00
$

$

$

$

‐$ 300,000.00
$

$

$

$

‐$ 350,000.00
$

$

$

$

$

$
5,000,000.00

‐$
3,900,000.00
‐$
3,900,000.00
‐$ 31,200,000.00
$ ‐
$ ‐
$ ‐
$ ‐
‐$ 300,000.00
$ ‐
$ ‐
$ ‐
$ ‐
‐$ 350,000.00
$ ‐
$ ‐
$ ‐
$ ‐
$
5,000,000.00

$ 5,680,000.00
$ 5,693,000.00
$ 5,703,664.00
$ 5,038,596.56
$ 4,462,037.50
$ 4,394,479.76
$ 4,394,380.23
$ 4,392,497.60
$ 4,388,365.19
$ 4,074,048.75
$ 3,991,015.34
$ 3,975,416.08
$ 3,957,056.96
$ 3,935,799.68
$ 2,623,690.39

‐$
500,000.00
‐$ 15,000.00
‐$ 15,450.00
‐$ 15,913.50
‐$ 16,390.91
‐$ 16,882.63
‐$ 17,389.11
‐$ 17,910.78
‐$ 18,448.11
‐$ 19,001.55
‐$ 19,571.60
‐$ 20,158.75
‐$ 20,763.51
‐$ 21,386.41
‐$ 22,028.01
$
756,294.86

‐$
3,900,000.00
‐$
3,900,000.00
‐$ 31,200,000.00
$ ‐
$ ‐
$ ‐
$ ‐
‐$ 300,000.00
$ ‐
$ ‐
$ ‐
$ ‐
‐$ 350,000.00
$ ‐
$ ‐
$ ‐
$ ‐
$
5,000,000.00

Total Project Cash Cummulative
Flow
Cash Flow
‐$
3,900,000.00 ‐$
3,900,000.00
‐$
3,900,000.00 ‐$
7,800,000.00
‐$ 31,700,000.00 ‐$ 39,500,000.00
$
5,665,000.00 ‐$ 33,835,000.00
$
5,677,550.00 ‐$ 28,157,450.00
$
5,687,750.50 ‐$ 22,469,699.50
$
5,022,205.66 ‐$ 17,447,493.85
$
4,145,154.87 ‐$ 13,302,338.97
$
4,377,090.65 ‐$
8,925,248.32
$
4,376,469.45 ‐$
4,548,778.87
$
4,374,049.49 ‐$ 174,729.38
$
4,369,363.64 $
4,194,634.25
$
3,704,477.16 $
7,899,111.41
$
3,970,856.60 $ 11,869,968.01
$
3,954,652.57 $ 15,824,620.58
$
3,935,670.55 $ 19,760,291.13
$
3,913,771.67 $ 23,674,062.80
$
8,379,985.25 $ 32,054,048.05
Discount Rate
NPV
IRR

Discounted Cash
Flow (12%)

$
5,197,247.71
$
4,778,680.25
$
4,391,986.97
$
3,557,857.10
$
2,694,066.25
$
2,609,916.14
$
2,394,078.66
$
2,195,187.95
$
2,011,776.40
$
1,564,811.18
$
1,538,837.38
$
1,406,016.31
$
1,283,731.69
$
1,171,182.34
$
2,300,624.74
9%
‐$ 403,998.93
8.38%

Similar Documents

Premium Essay

Ocean Carriers

...Answer to Question #1: The daily spot rate for 2002 will likely decrease despite the 2% forecasted growth in worldwide iron ore shipments as 63 new dry bulk capesizes are expected to be delivered in 2001, and 33 in 2002, thereby increasing worldwide supply of capesizes by 11% and 5.4%, respectively. Furthermore the worldwide capesize fleet is relatively young – only 8 capesizes are at least 20 years old – there should be relatively few scrappings. For example Exhibit 5 of the Ocean Carriers case study shows the direct correlation between the number of shipments of iron ore and the average daily spot rate. From 1995-1996, the average spot rate fell from $20,149 to $11,730 and from 1997-1999, the average spot rate fell from $14,794 to $9,427. Consequently, the iron ore shipments effectuated from 1995 through 1996 and from 1997 to 1999 were stagnant. Based on the foregoing historical data and trends, one could expect the same result for the time period from 2001 through 2003. One could expect cash flows for the company to decline as a result. As such, it is economically preferable for ship owners to enter into short term spot market contracts rather than signing long term time charters which would lock them at a low daily rate for an extended time period. Answer to Question #2: Average daily hire rates are determined by supply and demand for capsizes and market conditions. Supply is affected by the number of ships available, plus new ships...

Words: 692 - Pages: 3

Premium Essay

Ocean Carriers

...Ocean Carriers Case Study Q1. a). we expect the daily spot hire rates to decrease in 2001 and 2002 according to the forecast in exhibit 5. This decline in daily spot rates is also supported by the forecast in Exhibit 3 showing a decline in ordering bulk capsizes from 63 in 2001 to 33 in 2002. Spot hire rates tend to fluctuate depending on the highs and lows trading volumes in the market. So since according to the forecast the demand for Iron ore had a poor market outlook in 2001, the spot hire rates were expected to remain stagnant or low. Exhibit 3 Current order book for dry bulk capesizes by delivery date | | | | | | |   | 2001 | 2002 | 2003 | 2004 | | | | | | | | Number of vessels | 63 | 33 | 21 | 9 | |   |   |   |   |   | | b). Market conditions dictated by demand and supply of basic industrial products drive average daily rates. For instance in 2001 the poor market demand for Iron ore drove the daily rates low because Iron ore trading countries would cut costs by trading within nearby trading partners. However, the optimistic Iron market conditions in 2003 between Australia and India increased the demand for capsizes to accommodate trading patterns dictated by distance between world Iron ore trading countries. c). Increase in daily rates is also a function of the age and size of the ship. According to the Ocean estimates in Exhibit 4, Ocean newer vessels tended to earn 15% average daily rates whereas older vessels gave 35% discount from the......

Words: 531 - Pages: 3

Premium Essay

Ocean Carriers

...Budgeting In Practice Ocean Carriers These questions relate to the Ocean Carriers case in your course packet. You can find the data for this case on the course website in a spreadsheet named: Ocean Carriers Exhibits.xls. This case provides the opportunity to make a capital budgeting decision by using discounted cash flow analysis to make an investment and corporate policy decision. Ocean Carriers is a shipping company evaluating a proposed lease of a ship for a three-year period beginning in 2003. The proposed leasing contract offers very attractive terms, but no ship in Ocean Carrier’s current fleet meets the customer’s requirements. The firm must decide if future expected cash flows warrant the considerable investment in a new ship. 1. Do you expect daily spot hire rates to increase or decrease next year? Give the reasons for your choice. Which are the factors that drive average daily rates? What does this imply in terms of your cash flow projections? 2. How much is the cost of a new vessel in present value terms? What is the book value of the ship? 3. Should Ms Linn purchase the capesize carrier? Assume that it is going to be sold for scrap after 15 years. [Hint: Construct the Free Cash Flows of the project!] Explain the reason for constructing the free cash flow rather than some other type of cash flow? Assume that the relevant corporate tax rate is 35%. 4. Ms Linn is considering trying to argue that the firm should operate carriers for more than 15......

Words: 718 - Pages: 3

Premium Essay

Ocean Carrier

...Analysis In order to make a recommendation to Mary Linn as to whether Ocean Carriers, Inc. should purchase a new ship we must first look at the net present value of the ship. In order to do this our team used the provided expected daily hire rates to calculate revenue which we expect to be for the lifetime of this vessel. The expected daily hire rate is the most accurate measure to determine future cash flows for the company. By using the annual operating days over the life of the new vessel we were able to determine the annual daily hire revenue. The daily operating cost for the vessel was provided for year 2 at $4,160. For the remaining years of the ship, we increased the operating costs at 1% over the inflation rate of 3%. We used the market year of 360 days per year to determine operating costs incurred, which lead us to annual operating costs of $1,497,600 in year 2, and $1,557,504 in year 3. The company incurred only two survey costs due to the company policy of scrapping a vessel after 15 years. These costs incurred a straight-line depreciation over 5 years. Appendix A shows an annual vessel depreciation expense of $1,560,000 beginning in year 1. Taxes were determined by using the given rate of 35% which did not change over the life of the project. Our analysis includes a down payment of $3,900,000 in years 0 and 1; followed by the remaining $31,200,000 of the cost in year 2. All net working capital will be complete after year 15, and cash flows were calculated by......

Words: 489 - Pages: 2

Premium Essay

Ocean Carriers

...Memo OCEAN CARRIERS Date: January 2, 2001 To: Mary Linn, Vice President of Finance From: Thomas Harper Subject: Investment in New Capesize Bulk Ship After analyzing the commissioning of a new capsize ship for a three-year lease, my team has come to the conclusion that Ocean Carriers should move forward with the investment only if it is built and registered in our Hong Kong office. There were key assumption my team and I made in our analysis and they are as follows: 1. We assumed a discount rate of 9% throughout the life of the new capsize. 2. Secondly, we assumed a tax rate of 35% in the United States and a 0% tax rate in Hong Kong. 3. The company policy of only 15 years of service would be upheld with the new capsize. 4. The given spot rates are reasonably accurate throughout the life of the capesize. 5. The charterer offered rate and annual escalation for years 1 through 3 are set in stone. After considering our assumptions we analyzed the data to calculate the free cash flows of the project and were able to come up with the Net Present Value, Profitability Index, and the Internal Rate of Return for the new project. Our calculations are in the attached Excel Workbook under the Investment tab. As you will see in the Excel tab the NWC gained from building the capesize in Hong Kong was $7,149,883, while the NWC from building the capesize in United States created a loss of $1,207,088 for the company. Exhibit 2 it shows......

Words: 628 - Pages: 3

Premium Essay

Ocean Carriers

...Ocean Carriers Inc. was approached in January of 2001 with a contract proposal for the leasing of one of their ships for a term of 3 years beginning in 2003. Ocean Carriers currently has no ship to accommodate the customer. To commission the construction of a new vessel would take 2 years from start to completion. The average rate in the spot market is $22,000 per day. Ocean Carriers deployed a younger fleet than average carriers and generally earned a 15% premium over the average daily rate placing them in position to capitalize in strong economies. However, the industry is volatile and suseptable to extremes both low and high. Many ship owners sought to sign contracts with time charters in order to shield themselves from the swings in the market. The age of the vessel is another key variable in the rate an owner can demand. Younger ships, as mentioned before, generally take in 15% higher rates than the industry average. However, the older ships, roughly 25 years or over, demanded a 35% discount off of the industry average. Location is also a key factor in determining the demand for dry bulk capsizes. The distance between the US and the EU is relatively short requiring a smaller fleet of ships. Whereas, an upturn in demand in the Asian Pacific would require a greater fleet of capsizes in order to accommodate the time required to ship such distances. Ocean Carriers had to concern themselves especially closely on the global economy because demand for dry bulk......

Words: 2550 - Pages: 11

Premium Essay

Ocean Carriers

...Ocean carriers has been approached by a customer who is offering attractive terms for a three year ship lease. However, there is no existing ship that meets the customer’s needs, so Mary Linn, Vice President of Finance, must decide if we should purchase a new ship that will meet the customer’s demands for $39 million. Since the lease is only for three years we need to analyze if by continuing to operate the ship for other charterers will be a profitable project for Ocean Carriers. It is the company’s policy not to operate a ship older than 15 years. At the end of the 15 year period the scrap value of the ship is estimated to be $5 million. Ocean Carriers charges a daily higher rate for the ships and usually earns a 15% premium to the industry, due to younger and larger ships. However, the availability of capsize ships is increasing so it is likely that the daily higher rate will decrease. The cost of operating a capsize ship is currently $4000 per day and is expected to increase at 1% above inflation. With increasing operation costs and a decreasing daily hire rate we must be cautious about the investments we make in new ships. I have explored four cases of analyzing the Net Present Value of the project. Case 1 The first case explores commissioning a United States based ship for fifteen years. In the case we assume the first 3 years are a guaranteed lease to the customer we are building the ship for, where we will receive a $20,000 daily higher rate that will......

Words: 824 - Pages: 4

Premium Essay

Ocean Carriers

...Case Study 1 – Ocean Carriers 1. The Capital Budgeting Decision Should Ms. Linn purchase the Capesize vessel? Assume that Ocean Carriers is a U.S. firm and is subject to 35% taxation. (Please see excel sheets) From our analysis it appears that Ms. Linn should not buy the Capesize vessel. The Net Present Value on the Ocean Carrier is not a positive number, a clear indicator that buying the vessels is not a good idea. The tax rate of 35% makes a lot of difference in determining this NPV. In our calculations we did assume a tax rate on the final sale of the vessel. If it were possible, or known, the tax rate on the salvage it might be more feasible to buy the vessel, and end up with a positive NPV. The effect of taxes on EBIT and thereby NPV is easily seen in our analysis numbers. As taxes remain steady and profits from operations falls, the prudence of the investment becomes apparent. Assume that Ocean Carriers in based in Hong Kong, where owners of Hong Kong ships are not required to pay any tax on profits made overseas and also are exempt from paying any tax on profit made on cargo uplifted from Hong Kong. (Please see excel sheets) If the tax rate were a non-issue it would make sense to buy the vessel. Running our analysis with a zero tax rate gave a positive NPV. This is due to the effects of taxes on EBIT. While it is more realistic to expect a tax rate, draw of having a zero tax rate would make this project more attractive to management, and possible. It......

Words: 982 - Pages: 4

Premium Essay

Ocean Carriers

...Ocean Carriers: Case Study MBA 540 Fall 204 Janelle Roche King Quaidoo Suzanne Ekstrom Net Present Value: 15 Year Evaluation if the United States with a 35% Taxation Net present value is used in order to determine the present value of an investment by the discounted sum of all cash flows received from a project. In this case this would be the calculation of the single project capital budgeting for Ocean Carriers Inc. and a purchase of 15 year operation vessel. This 15 year time span would begin in 2000 and continue until 2017. Ocean Carries Inc. in this scenario would be subject to the United States 35% taxation. In order to calculate the net present value the free cash flow had to be calculated. Using the formula; EBIAT + depreciation – capital expenditure - change in net revenue + after tax proceeds from the sale of a ship (Year 17: $645,899 + $1,630,000 - 0 - ($756,295) + $8,710,000 = $11,742,193.61) the free cash flow was calculated. Using that calculation the present value of the free cash flow was calculated using the formula; Free cash flow / (1 + 9%) ^ Event year. After summing the total of the present value free cash flow the conclusion was the net present value. After fully comprising the single project capital budget it can be concluded that the Net Present Value would equal -$7,805,694. The net present value rule states that an investment should be accepted if its net present value is greater than zero and should be rejected if it is less than zero.......

Words: 1110 - Pages: 5

Premium Essay

Oceans Carrier

...Ocean Carriers Ocean Carriers Inc. was approached in January of 2001 with a contract proposal for the leasing of one of their ships for a term of 3 years beginning in 2003. Ocean Carriers currently has no ship to accommodate the customer. To commission the construction of a new vessel would take 2 years from start to completion. The average rate in the spot market is $22,000 per day. Ocean Carriers deployed a younger fleet than average carriers and generally earned a 15% premium over the average daily rate placing them in position to capitalize in strong economies. However, the industry is volatile and suseptable to extremes both low and high. Many ship owners sought to sign contracts with time charters in order to shield themselves from the swings in the market. The age of the vessel is another key variable in the rate an owner can demand. Younger ships, as mentioned before, generally take in 15% higher rates than the industry average. However, the older ships, roughly 25 years or over, demanded a 35% discount off of the industry average. Location is also a key factor in determining the demand for dry bulk capsizes. The distance between the US and the EU is relatively short requiring a smaller fleet of ships. Whereas, an upturn in demand in the Asian Pacific would require a greater fleet of capsizes in order to accommodate the time required to ship such distances. Ocean Carriers had to concern themselves especially closely on the global economy because demand for dry bulk......

Words: 1432 - Pages: 6

Premium Essay

Ocean Carriers

...Michael Depersia Ocean Carriers needs to evaluate the decision to commission a new capesize carrier. Mary Linn, Vice President of Finance, needs to decide if this is a profitable decision for the company. In determining whether Ocean Carriers should purchase the new capesize carrier for the potential customer, we completed a net present value analysis of the project. In order to do this we need to take many things into account including, but not limited to, depreciation, opportunity costs and networking capital. To begin, we calculated the revenue given expected daily hire rate that could be expected over the lifetime of the vessel. We chose to use the expected daily hire rate because it most accurately represents Ocean Carrier’s cash flows. The initial investment was 10% of the purchase price in first year, which amounted to $3,900,000 paid in the beginning and the end of the first year. Beginning in 2003, the operating costs for the vessel were $1,460,000 ($4,000 per day), growing at a rate of 1% per year. For the 15 year analysis, we first subtracted the $5,000,000 salvage value and used straight-line depreciation over 15 years, which was $2,667,667 per year. Depreciation is important for this calculation because it allows the firm to recognize the wear and tear on the vessel by decreasing the worth of the asset. The straight-line depreciation method allows firms to allocate fixed reductions in the asset's value over its useful life. It is calculated by the acquisition......

Words: 646 - Pages: 3

Premium Essay

Ocean Carriers

...Ocean Carrier Case Study Summary In order to accept the recently submitted leasing contract proposal, Ocean Carriers would have to purchase a new ship. The purchasing of a new ship is a considerable investment. We have analyzed whether or not Ocean Carriers should make this investment using Free Cash Flow and Net Present Value (NPV) analysis. Given the details of the contract, the forecasted daily time charter rates, and the costs data; we have concluded that Ocean Carriers should not accept the proposal and purchase a new ship if the company’s plan is to scrap the ship in 15 years. The NPV of this option is negative, roughly -$43,705, which means that Ocean Carriers would lose money over the life of this project. However, further analysis has concluded that operating the ship for its entire useful life, 30 years, can produce a positive NPV, roughly $2,107,016. So Ocean Carriers’ should consider taking on this proposal only if they can continue operating the ship for 30 years. *Please see assumptions and capital budget details. Answers to Case Questions 1) Spot hire rates will likely decrease in the near term, 2001 and 2002. Imports for ore look to be flat and won’t likely increase for the next two years. With 63 new capsizes scheduled for completion in 2001 there will likely be an overage of supply in the near term. Daily rates are driven by supply and demand as well as the trade patterns. With additional cargo carriers entering the fleet and depressed demand...

Words: 619 - Pages: 3

Premium Essay

Ocean Carrier

...Ocean Carriers According to Exhibit 3, the number of vessels is set to increase from 2001 to 2004. The iron ore shipment imports stay relatively the same amount, so we expect the daily spot rates to decrease over the next few years. The daily hire rates are driven by supply and demand. The historical changes in these rates have been related to the change of the bulk shipments. The supply is equal to the currents vessels plus new ships minus scrapings. Demand for dry bulk capesize is determined by the economy. A strong economy will increase the demand. The long-term prospects of the capesize dry bulk industry are connected to the volume of vessel shipments of iron ore and coal. We expect the long-term prospects to grow. Over 85% of the cargo carried by capsizes was iron ore and coal. The amount in tons of iron ore shipments is expected to grow consistently each year. The cost of a new vessel in present value terms is $33,738,397. Ocean Carriers will pay the $39 million over three installments: 10% immediately, 10% in a year and the rest in two years. The $33,738,397 is roughly 87% of the $39 million price. The installments are a good financing decision for Ocean Carriers since it is less than the $39 million. If the ship is going to be sold for scrap after 15 years, we should calculate the NPV from 2000 to 2017. There are mainly three steps to calculate NPV. First, we work out EBIT, then calculate free cash flow, and finally use the free......

Words: 452 - Pages: 2

Premium Essay

Ocean Carriers

...Background Ocean Carriers Inc. is a shipping company specializing in the operation of capsizes bulk dry carriers. In January 2001, Mary Linn, the vice President of Finance for Ocean Carriers was evaluating the purchase of a new capsize carrier for a three years lease proposed by a motivated customer. The leasing contract offers very attractive terms, but no ship in Ocean Carrier’s current fleet met the customer’s requirements. In addition, this proposed contract is only for three years. Therefore, after three years, the new capsize carrier will have to be leased to other customers. So considering in the long run, Linn had to decide whether Ocean Carriers should immediately commission a new ship which could be completed in two years. In the same time, she would have to consider if the company should still follow the policy of scrapping a vessel after 15 years, even though such vessel has a product life of 25 years. Analysis There are two main factors would affect the daily spot hire rates which are the number of available vessels and imports of iron ore and coal. From the Exhibit 3 of this case, we know that 63 new vessels were scheduled for delivery in 2001. This number decrease to 33 in 2002 and 21 in 2003. So we can infer that the demand of new vessels is saturated temporary. Besides, with Australian production in iron ore expected to be strong and Indian iron ore exports expected to take off in the next few years, we can infer the long-term market demand for capsizes......

Words: 907 - Pages: 4

Premium Essay

Ocean Carriers

...Ocean Carriers’ Case Spring 2012 Ocean Carriers Ocean Carriers Inc. owned and operated capsized dry bulk carriers that carried iron ore worldwide. The company’s vessels were typically chartered on a “time charter” basis for a period of years. The charterer paid Oceans Carriers a daily hire rate for the entire length of the contract, determined what cargo the vessel carries, and controlled where the vessel loaded and unloaded. Ocean Carriers supplied a vessel that complied with internal regulations and manned the vessel with a qualified crew. Additionally, Ocean Carriers ensured adequate supplies and stores onboard, supplied lubricating oils, scheduled the repairs, conducted overall maintenance of the vessel, and placed all insurances for the vessel. Need for Analysis In 2001, Ocean Carriers was in a predicament and it was essential that the company conduct detailed analysis before making major decisions. Ocean Carriers was in negotiations with a charterer for a three-year time charter starting in 2003, but the vessels in Ocean Carriers’ current fleet could not commit to a time charter beginning in 2003. The company’s ships were either already leased during that period or were too small to meet the customer’s needs. It is also noteworthy that there were no sufficiently large capsizes available in the second-hand market. Ocean Carriers had to decide how to handle this situation with the charterer and thorough analysis was certainly necessary.......

Words: 670 - Pages: 3