Ocean Carriers Case Solution
Sea Carriers is be a shipping company, owning and operating dry bulk carriers basically for press metal and coal trades, headquartered in both of the states in New York as well as Hong Kong. In early 2001, the company had received a renting offer from a modern potential charterer for a period of 3 years, beginning in 2003. The current Armada does not meet the customer’s needs; subsequently, the commission of a modern Capesize is being assessed. Given that the contract will last only for 3 years; Sea Carriers must consider the potential showcase hazard from 2003 on wards.The company’s technique has not been to function ships more seasoned than 15, in order to move a third overview, rejecting the vessels or offering them within the second-hand showcase. Our examination shows that this approach tends to lead towards a negative NPV. In congruity with our estimations; the situation, in which the monetary base is settled in Hong Kong andcapsizes are agent for their whole valuable life (25 a long time), which causes the considered speculation to be commendable.
Mary Linn is the VP (Vice President) of the Finance department of Ocean Carriers Company, which is examining the smart offer given by the customers to the agreement capsize for three years. This bargaining starts from 2003. This company’s current taskforce does not see the potential modern charterer’s prerequisites, the company has to decide that whether the commission of a modern Capesize could be a commendable long-term venture or is it superior to deny the rent proposition. In the event, the investment is attempted; the administration must choose whether to enlist the ship in Hong Kong or in New York or and to contribute for 15 long time or amplify extend to 25 long time.(Erik Stafford)
Scenario Question 1
Present Value of cash flow is based on the ship of the life. If the ship is operated for the entire period of time. The PV (present value) of contracting a new 180000 ton of dead weight ship is $ 15571580 at thirty five percent tax and it is 6651362 at zero percent tax.
But if the ship has operated for the 15 years and then is sold at $ 5 million, the present value of cash flows at thirty five percent of tax rate is 13555510 and its 9,371,459.3 at the zero percent tax rate. The different scenario can occur from this present value of cash flows. This cash flows is shown in this point,
|Scenario||Present Value of Cash Flows|
|Whole life of ship with 35% tax||15571580|
|Whole life of ship with 0% tax||6651362|
|15 years life of ship at 35% tax||13555510|
|15 years life of ship at 0% tax||9,371,459|
According to this table, all present value of the entire scenarios are more greater than the genuine cost of the ship that’s $39000000, which indicates that the ship is acquired at a lower cost than its real price………………………
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