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Ocean Carriers Project Analysis

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Ocean Carriers Project Analysis
November 9, 2004

Mary Linn
Vice President of Finance
Ocean Carriers

Re: 180,000 DWT Vessel Proposal

Dear Mary:

Our analysis of the proposal for the construction of a new 180,000 DWT vessel has brought us to the conclusion that the project should not be undertaken. Our recommendation and decision is based on a discounted cash flow analysis of expected future cash flows from the vessel that produced a net loss for the project of $7,201,639. Included in this recommendation are a number of important assumptions, each of which is described in detail below, that we believe are neither conservative nor aggressive in nature. A sensitivity analysis of major assumptions in our analysis is included on the final page of this memo. In each viable case, we arrived at the same conclusion to not undertake this project.

Client Contract Proposal and Timing
This project arose as a result of an attractive offer presented by a client. The client offer is for what we estimate to be a 10-13% premium to 3-year time charter rates over the life of the contract. Despite the attractive terms of this contract and our favorable view of the contract in isolation, the contract offers both limited value and impact to the overall project due to its short length. As a result, cash flows derived from the project during years 4-15 as well as the future resale value of the vessel are important factors in the results of our analysis.

Discounted Cash Flow Analysis
Our cash flow analysis is dependent upon our forecasts of several key variables. Each of these variables, their estimates and use are described below.
Future Time Charter Rates – Our analysis focuses on time charter rates versus future spot market rates per company historical exposure and high percentage use of time charters versus the spot market. Time charter rates were also used versus Spot rates due to the relatively lower volatility of the time charter market. We also added a premium to the charter rate during the

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