FIN 555 CASE 1 Q3 Ms.Linn should not purchase the capsize carrier because the NPV is negative. a. Incremental earning forecast 1. Operating Revenue From the following Exhibit‚ We can see that from year 2003 to year 2007‚ from year 2008 to year 2012‚ and from year 2013 to year 2017‚ 8 days‚ 12 days and 16days is separately used to repair. The annual operating revenue = expected daily hire rate * (365- numbers of days for repair) 2. Operating Cost The annual operating cost
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(a) Statement of Problem. Ocean Carriers is evaluating a proposed three year lease of a ship. Currently‚ no ships in Ocean Carrier’s fleet meet the requirements of the customer. Since the new ship requires an investment of $39 million‚ Mary Linn‚ the Vice President of Finance for Ocean Carriers‚ needs to evaluate the proposal’s NPV and determine whether or not to accept the proposal by considering expected cash flows‚ tax implications‚ and future market conditions. (b) Statement
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Ocean Carrier Case Study INDEX Case Background··························3 Dilemma································3 Scenarios under different tax rates and years ····························3 Alternative································5 Decision summary··························5 Appendix Ocean Carrier Case Study * Case Background Mary Linn of Ocean Carriers is evaluating the purchase of a new capesize carrier for a 3-year lease proposed by a motivated customer
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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
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Ocean Carriers Case Ocean Carriers uses a 9% discount rate. 1. Do you expect daily spot rate to increase or decrease next year? Daily spot rates are expected to decrease next year because 63 new vessels are scheduled for delivery over the next year and imports of ore and coal would most likely remain stagnant over the next two years. Imports of iron ore and coal and the number of vessels available are two big factors of spot rates. 2. What factors drive average daily hire rates?
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OCEAN CARRIERS ANALYSIS DATE: 8/29/2007 TO: MS MARY LINN CC: PROF. TOM MILLER FROM: RYAN DALE SEELKE RE: DECISION ON CAPE SIZE CARRIER PRIORITY: [URGENT] Ms Mary Linn‚ After careful cash flow analysis and a discount rate (WACC) of 9%‚ commissioning a capsize carrier for 25 years is the only appropriate option for our firm. However‚ if the discount were instead 10%‚ both options would fail the NPV test by yielding negative results. I make this recommendation after thorough analysis of
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“Ocean Carriers” case Assume that Ocean Carriers uses a 9% discount rate. 1) Do you expect daily spot hire rates to increase or decrease next year? (5 points) 2) What factors drive daily hire rates? (5 points) 3) How would you characterize the long-term prospects of the capesize dry bulk industry? (10 points) 4) Should Ms Linn purchase the $39M capsize? Make 2 different assumptions. First‚ assume that Ocean Carriers is a US firm subject to 35% taxation. Second‚ assume that
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Ocean Carriers HW#7 PRINCIPLES OF MORDERN FINANCE (FALL 2012) JINGYE HAN “Ocean Carriers” case 1) Do you expect daily spot hire rates to increase or decrease next year? I expect daily spot hire rates to decrease next year. Based on Exhibit 3‚ order book in 2002 for dry bulk capsizes decreased‚ indicating a decrease in demand. Meanwhile‚ Based on Exhibit 2‚ the majority of capsize fleets in December 2000 are in the age within 15 years‚ among them‚ the largest portion is of those under
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OCEAN CARRIERS CASE 1) Should Ls Linn purchase the $39M capsize? 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. The
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Ocean Carriers Assumptions and Methodology Based on an NPV analysis considering multiple scenarios‚ Ocean Carriers should commission the construction of a new capesize carrier in the event they are operating with no corporate tax and chartering the ship for its entire 25 year life. Such is the recommendation assuming the forecasted hire rates and estimated costs are accurate over the long-term. However‚ if Ocean Carriers chooses to adhere to their policy of selling ships at market value
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