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 Expectations for Daily Spot Hire Rates Next Year Iron ore and coal imports will most probably decrease the upcoming year With the increasing supply of vessels should result in a market surplus By creating this surplus‚ prices will be driven down‚ since we will have limited demand and suppliers competing Average daily rates‚ based on historical numbers‚ have a direct relationship with the number of shipments. What Factors Drive Average Daily Hire Rates? u
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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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REPORT ON CAPESIZE PURCHASE FOR OCEAN CARRIERS Introduction The purpose of this report is to evaluate whether Ocean Carriers Inc. should immediately commission a new capesize carrier that would cost $39 million‚ and would be completed two years hence‚ in order to finalize a lease of the ship for a three-year period with a potential charterer in very good faith. The contrasting tax regulations between the two countries where the company locates its office‚ and the different cost-benefit circumstances
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1856‚ Australian inventor James Harrison‚ used ammonia on experimental basis but used ether in the equipment that was previously constructed. Then‚ in 1902‚ Willis Carrier‚ the “Father of Air-Conditioner” designed humidity control for a new air-cooling system and pioneered modern air conditioning. Willis Carrier also originated the carrier equation upon which the psychometric chart and all air conditioning is based. Later‚ in 1906‚ Stuart Cramer‚ engineer in North Carolina‚ invented a ventilating
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4.0 CARRIER’S IMMUNITIES FROM UNSEAWORTHINESS OF SHIP According to Hague-Visby Rules‚ Article 1 (a)‚ carriers include owner or the charterer who enters into a contract of carriage with the shipper. The carrier will not be liable for losses or damage to cargo if it falls under any of the circumstances stated in the carrier’s immunities. First‚ in the Art IV rule 1 if the carriers exercises due diligence‚ immunities will be given only against latent defects that is not discoverable on a reasonable
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Financial Management Read ‘Ocean Carriers’ and answer the following questions: Ocean Carriers uses a 9% discount rate. 1. Do you expect daily spot rate to increase or decrease next year? - The expected daily hire rates drives the daily spot rates higher. So we are expecting the higher daily spot rates under higher expected daily hire rates. 2. What factors drive average daily hire rates? - Demand in iron ore shipments‚ - World economy‚ strong economy in western countries will raise
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Case Study 1 – Ocean Carriers 1. The Capital Budgeting Decision Should Ms. Linn purchase the Capesize vessel? Assume that Ocean Carriers is a U.S. firm and is subject to 35% taxation. (Please see excel sheets) From our analysis it appears that Ms. Linn should not buy the Capesize vessel. The Net Present Value on the Ocean Carrier is not a positive number‚ a clear indicator that buying the vessels is not a good idea. The tax rate of 35% makes a lot of difference in determining this NPV
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Guide for Case Analyses “Ocean Carriers” Objectives of case: The key objective is to develop an understanding of how discounted cash flow analysis can be used to make investment and corporate policy decisions. 1. Determine the value and net present value of a real assets; 2. Distinguishing between book value and market value; 3. Identifying and forecasting incremental expected cash flows‚ including initial and ongoing capital expenditures‚ investment in net working capital‚
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