Ocean 
Assignment 1
Corporate finance
GAO Jiahua
20220034
Questions:
1) Should Ms Linn purchase the $39M capesize? Make two different assumptions. First, assume that Ocean Carriers is a U.S. firm subject to a 35% statutory (and effective) marginal tax rate. Second, assume that Ocean Carriers is domiciled in Hong Kong for tax purposes, where ship owners are not required to pay any tax on profits made overseas and are also exempted from paying any tax on profit made on cargo uplifted from Hong Kong, i.e., assume a zero tax rate.
2) What do you think of the company’s policy of not operating ships over 15 years old? Assume that Ocean Carriers can fully utilize any tax benefit it derives from asset sales. Support your answer by a spreadsheet analysis.
3) Suppose Ocean Carriers pays fixed annual dues of $500,000 to an association of ship owners that provides services to its members such as light houses, lobbying efforts, etc. Should a portion of these dues be included in the NPV calculation for the capesize? If so, what portion seems right?
4) Suppose that, two years ago, Ocean Carriers lost a large lawsuit related to a maritime accident where it allegedly caused a competitor’s ship to sustain extensive damage. As a result, Ocean Carriers was fined $10,000,000, which it settled to pay over 10 years. Should the balance of this fine (now standing at $8,000,000) be included in the NPV calculation for the capesize?
All the following calculation ignore leap year and assume there are 365 days a year.
1: 35% statutory (and effective) marginal tax rate
NPV= -4.5487Million dollars reject the project under 0.35 tax rate assume a zero tax rate
NPV=2.2231million dollars accept the project when there is no tax
2: On the fifth year, the book value is much greater than the scrap value. And considering that Ocean Carriers can fully utilize any tax benefit it derives from asset sales. As a result, it is not a wise choice to sell it on fifth year.
And for example, I assume
Corporate finance
GAO Jiahua
20220034
Questions:
1) Should Ms Linn purchase the $39M capesize? Make two different assumptions. First, assume that Ocean Carriers is a U.S. firm subject to a 35% statutory (and effective) marginal tax rate. Second, assume that Ocean Carriers is domiciled in Hong Kong for tax purposes, where ship owners are not required to pay any tax on profits made overseas and are also exempted from paying any tax on profit made on cargo uplifted from Hong Kong, i.e., assume a zero tax rate.
2) What do you think of the company’s policy of not operating ships over 15 years old? Assume that Ocean Carriers can fully utilize any tax benefit it derives from asset sales. Support your answer by a spreadsheet analysis.
3) Suppose Ocean Carriers pays fixed annual dues of $500,000 to an association of ship owners that provides services to its members such as light houses, lobbying efforts, etc. Should a portion of these dues be included in the NPV calculation for the capesize? If so, what portion seems right?
4) Suppose that, two years ago, Ocean Carriers lost a large lawsuit related to a maritime accident where it allegedly caused a competitor’s ship to sustain extensive damage. As a result, Ocean Carriers was fined $10,000,000, which it settled to pay over 10 years. Should the balance of this fine (now standing at $8,000,000) be included in the NPV calculation for the capesize?
All the following calculation ignore leap year and assume there are 365 days a year.
1: 35% statutory (and effective) marginal tax rate
NPV= -4.5487Million dollars reject the project under 0.35 tax rate assume a zero tax rate
NPV=2.2231million dollars accept the project when there is no tax
2: On the fifth year, the book value is much greater than the scrap value. And considering that Ocean Carriers can fully utilize any tax benefit it derives from asset sales. As a result, it is not a wise choice to sell it on fifth year.
And for example, I assume