Ocean Carrier Case Solutions

1049 Words Dec 4th, 2013 5 Pages
Case Study:
‘Ocean Carriers’

By:
Alyssa Linder
Wenliang Zhang
Xhangoli, Eva

1. Daily spot hire rates are determined according to supply and demand of the shipping capacity. According to the article, the supply of ships available equals the number of ships currently in the fleet plus any new ships added, minus any scrapings and sinking. According to Exhibit 2, there are a limited number of ships older than 24 years which are likely to be scraped. For those ships under the age group from 15 to 19, they will continue to provide supply and are not likely to be scrapped because a lot of them will get into the second hand market. The majority of the fleet is fairly young, and it looks as though an additional 63 vessels are on
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As technology is constantly working to improve the ships in terms of efficiency, fewer ships are required to carry the same amount of cargo. Also, with further innovation, costs to build ships will eventually decrease and profits will increase. Overall, the long-term prospect of the capesize dry bulk industry looks optimistic.
4. Based on the information provided in the case, our group calculated the NPV for the project under both tax environment and tax-free condition, respectively, by using the excel spreadsheet and the NPV function. (For a detailed calculation of NPV, please refer to Appendix Under 15-yr.) According to our calculation, we have the following results: In the first case scenario, which the firm is in a tax environment (35% income tax), the NPV of the project equals to -$6,366,054.53
Under the second case scenario, which the firm is in a tax-free environment, the NPV equals to -$834,638.76
According to the NPV rule, Linn should not take up the project, because the NPV of the project is negative for both these two scenarios.
5. From the firm’s point of view, the policy of not operating ships over 15 years old is designed to protect against uncertainty and to pursue a higher premium over the market by having more relatively young vessels rather than old ships. However, based on our calculation of the NPV of the project, under the assumption that the company will continue to operate the ships until the 25 years of service, the results

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