221138711 Ocean Carriers Case Study Solution
Group name: “Pretty Woman” corporate team
Daniela Rossini – (1649649) – Class 17; Giorgi Kolbaia – (1651397) – Class 17; Luca
Beisans – (1675347) – Class 17; Maxence de Poulpiquet – (1646504) – Class 17
Executive Summary
Given the current and expected market conditions, the financial department of the Ocean
Carriers Group is to evaluate the potential revenues and expenses of commissioning a new capsize ship for cargo transportation in order to meet a received demand for lease. A recommended approach would consist in analyzing the expectations for the world economy, trends in world trade and potential contracts; however, an estimated time of service should be assigned in order to predict future cash flows.
Summary of facts
In January 2001, Mary Linn, vice president of Finance for Ocean Carriers, had to decide whether to accept an offered leasing contract for the duration of three years. In the event of acceptance of the above-mentioned contract, the profits of the company would depend on the agreed hire rates, operating costs, ship depreciation and inflation. After the closure of the contract, further income would be evaluated based on expected market daily hire rates. The conditions for the proposed lease are shown in exhibit 1.
Statement of problem
The duration of the leasing contract is quite short so the company has to analyze whether the investment as a whole will prove to be profitable even after the closure of the contract. In order to do so, they will have to take into account the fluctuations of the daily spot rates in the short and long terms, as well as existing differences in taxation policies within its offices in
Hong Kong and in the United States. Last but not least, the company has to question the tenability of its 15-year policy.
Analysis
Spot hire rates
Daily spot hire rates are predicted to fall in 2001 and 2002 due to an increase in the fleet size
(63 new vessels are scheduled for delivery) and expected stagnation in iron ore and coal
Daniela Rossini – (1649649) – Class 17; Giorgi Kolbaia – (1651397) – Class 17; Luca
Beisans – (1675347) – Class 17; Maxence de Poulpiquet – (1646504) – Class 17
Executive Summary
Given the current and expected market conditions, the financial department of the Ocean
Carriers Group is to evaluate the potential revenues and expenses of commissioning a new capsize ship for cargo transportation in order to meet a received demand for lease. A recommended approach would consist in analyzing the expectations for the world economy, trends in world trade and potential contracts; however, an estimated time of service should be assigned in order to predict future cash flows.
Summary of facts
In January 2001, Mary Linn, vice president of Finance for Ocean Carriers, had to decide whether to accept an offered leasing contract for the duration of three years. In the event of acceptance of the above-mentioned contract, the profits of the company would depend on the agreed hire rates, operating costs, ship depreciation and inflation. After the closure of the contract, further income would be evaluated based on expected market daily hire rates. The conditions for the proposed lease are shown in exhibit 1.
Statement of problem
The duration of the leasing contract is quite short so the company has to analyze whether the investment as a whole will prove to be profitable even after the closure of the contract. In order to do so, they will have to take into account the fluctuations of the daily spot rates in the short and long terms, as well as existing differences in taxation policies within its offices in
Hong Kong and in the United States. Last but not least, the company has to question the tenability of its 15-year policy.
Analysis
Spot hire rates
Daily spot hire rates are predicted to fall in 2001 and 2002 due to an increase in the fleet size
(63 new vessels are scheduled for delivery) and expected stagnation in iron ore and coal