Valuation Methods for Ships: Corporate Financial Strategy
1. Based on prices for comparable transactions, how would you assess the reasonableness of the Bet Performers $133 million purchase price in May 2008?
To value a ship using the market approach, one had to identify a set of “comparable” ships where comparability was based on four main factors: ship type, size (DWT), age, and condition. According to Exhibit 3, there are five ships which are the most comparable to Bet Performer. They are Martha Verity, Ingenious, Sumihou, Cape Sun, and Coppersmith. These ships all have the most similar characteristics, in terms of ship type, DWT, ship age and gears. From the chart below, we could say that the purchase price of Bet Performer is a little overprice but still reasonable.
Sale Date Ship Name Ship Type DWT Year Built Age at Sale Gear Purchase Price Mar-07 Martha Verity Capesize 158.0 1995 12 gearless $63.0
May-07 Ingenious Capesize 170.0 1996 11 gearless $64.2 Nov-07 Sumihou Capesize 171.1 1996 11 gearless $106.0 Mar-08 Cape Sun Capesize 171.7 1999 9 gearless $135.0 May-08 Bet Performer Capesize 172.1 1997 11 gearless $133.0 Jul-08 Coppersmith Capesize 149.7 1995 13 gearless $101.0
2. How much was the Golden Wing worth in January 2009? Is this value, more or less, or the same as its purchase price of $27M?
Golden Wing’s net book value in January 2009 was $21 million. This value is lower than the purchase price of $27 million.
3. Under what conditions are market prices of ships likely to equal their fundamental value? Under what conditions are market prices likely to deviate from their fundamental values?
Market prices are likely to equal their fundamental value when the market is performing on average, when there are normal market conditions.
Market prices are likely to deviate from their fundamental values when market conditions are dysfunctional or irregular, with either excessively high or low prices. The goal of HSES approach was to calculate a ship’s LTAV, in
To value a ship using the market approach, one had to identify a set of “comparable” ships where comparability was based on four main factors: ship type, size (DWT), age, and condition. According to Exhibit 3, there are five ships which are the most comparable to Bet Performer. They are Martha Verity, Ingenious, Sumihou, Cape Sun, and Coppersmith. These ships all have the most similar characteristics, in terms of ship type, DWT, ship age and gears. From the chart below, we could say that the purchase price of Bet Performer is a little overprice but still reasonable.
Sale Date Ship Name Ship Type DWT Year Built Age at Sale Gear Purchase Price Mar-07 Martha Verity Capesize 158.0 1995 12 gearless $63.0
May-07 Ingenious Capesize 170.0 1996 11 gearless $64.2 Nov-07 Sumihou Capesize 171.1 1996 11 gearless $106.0 Mar-08 Cape Sun Capesize 171.7 1999 9 gearless $135.0 May-08 Bet Performer Capesize 172.1 1997 11 gearless $133.0 Jul-08 Coppersmith Capesize 149.7 1995 13 gearless $101.0
2. How much was the Golden Wing worth in January 2009? Is this value, more or less, or the same as its purchase price of $27M?
Golden Wing’s net book value in January 2009 was $21 million. This value is lower than the purchase price of $27 million.
3. Under what conditions are market prices of ships likely to equal their fundamental value? Under what conditions are market prices likely to deviate from their fundamental values?
Market prices are likely to equal their fundamental value when the market is performing on average, when there are normal market conditions.
Market prices are likely to deviate from their fundamental values when market conditions are dysfunctional or irregular, with either excessively high or low prices. The goal of HSES approach was to calculate a ship’s LTAV, in