Ocean carriers relies on the shipments of iron ore and coal because it makes up 85% of its current business in this case study, the mention of strong production of ore in australia and india over the long term will increase trading volumes and require large capesize vessels. Ocean carriers is a us firm subject to 35% taxation similarly capital budgeting on working 1 at excel worksheet provides undiscounted net free cash flows of about $34 million discounting these to current value at 10% gives positive npv of approximately $14 million. Ocean carriers assumptions and methodology based on an npv analysis considering multiple scenarios, ocean carriers should commission the construction of a new capesize carrier in the event they are operating with no corporate tax and chartering the ship for its entire 25 year li. View notes - ocean carriers excel spreadsheet from finance 3301 at northeastern university ships to be added fleet growth scrappings 2001 63 1067% 4 discount rate capsize cost tax. First, assume that ocean carriers is a us firm subject to 35% taxation second, assume that ocean carriers is located in hong kong, where owners of hong kong ships are not required to pay any tax on profits made overseas and are also exempted from paying any tax on profit made on cargo uplifted from hong kong.
We discounted future cash flows generated from operating the ship as the method to determine the market value of the ship a us buyer with under the same tax rate as ocean carriers will calculate a price threshold of $15,858,028, meaning that a us buyer will yield a zero return if it paid the threshold amount. Ocean carriers uploaded by jacoby lazarus $ 7,272,198 projected cost of capital $ 012 pv of free cash flow $ 63,260,149 npv $ 8,240,688 in year 15 includes.
Ocean carriers the wal-mart vs sears dilemma as the newest member of the smith, mccormley, and mashek investments analysts' team, i have been given the task to. Ocean carriers executive summary ocean carriers is a shipping company, which has offices in new york and hong kong they operate capsize dry bulk carriers and carry iron ore around the world as the vice president of the company, mary linn is considering a new capsize lease proposal by a customer for a 3-year period beginning in early 2003. A) assume that ocean carriers is a us firm subject to 35% taxation b) assume that ocean carriers is located in hong kong, where owners of hong kong registered ships are not required to pay any tax on profits.
Ocean carrier case study discounted cash flow the net present value of the investment for the 15 year period in which ocean carriers would use the ship is negative ($6,814,246) which means the company should not. Programs in the us have both negative npv and less irr 25 years program is better than 15 years program, but it is still a bad option to invest in the us invest in hong kong hong kong has better npv and irr than the us due to no taxes, but 15 years program still has negative npv and unsatisfied.
Ocean carriers owns and operates capesize vessels that carry iron ore worldwide round cape horn- longer and riskier routes mainly chartered for 1-, 3-, or 5-year periods, occasional spot market charter. Ocean carriers' vessels were commonly chartered on a time charter basis for 1-, 3-, or 5-year periods, however the spot charter market was also used sensitivity, scenario, and breakeven analysis the npv is usually dependent upon assumptions and projections. Ocean carriers evaluates the lease and possible scrapping of a ship, involving net working capital, asset sale, and tax treatment issues in forecasting cash flows. 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.
Secondly, ocean carriers should also extend the life of their ships to 25 years at this time, they are missing out on another 10 years of positive cash flows in this case, ocean carriers could receive approximately an additional $45 million by extending the life of the ship to 25 years. In considering whether ocean carriers should purchase the new capsize carrier for the potential customer, we completed a net present value analysis of the ship we utilized the given expected daily hire rate to calculate the revenue that could be expected over the lifetime of this vessel. Case 2 : ocean carriers ocean carriers: ocean carriers inc, a shipping company with offices in new york and hong kong, owned and operated capesize dry bulk carriers that mainly carried iron ore worldwide the manager was evaluating a proposed lease of a ship for a three-year period, beginning in early 2003.