Essay Ocean Carriers Case

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“Ocean Carriers” case

Assume that Ocean Carriers uses a 9% discount rate. 1) Do you expect daily spot hire rates to increase or decrease next year? (5 points)

2) What factors drive daily hire rates? (5 points)

3) How would you characterize the long-term prospects of the capesize dry bulk industry? (10 points)

4) Should Ms Linn purchase the $39M capsize? Make 2 different assumptions. 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. (75 points)

5) What
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Linn expected that Australian and Indian ore exports would begin in 2003, and that new supplies would significantly increase trading volumes. Demand for capesizes would likely increase with these higher trading volumes, possibly boosting prices. According to Exhibit 5, we can get the following data: | 1994 | 1995 | 1996 | 1997 | 1998 | 1999 | 2000 | Iron ore vessel shipments | 375 | 397 | 385 | 424 | 420 | 410 | 440 | Growth rate | | 5.87% | -3.02% | 10.13% | -0.94% | -2.38% | 7.32% | Avg. spot rate | $16,851 | $20,149 | $11,730 | $14,794 | $10,105 | $9,427 | $22,575 | Growth rate | | 19.57% | -41.78% | 26.12% | -31.70% | -6.71% | 139.47% | Avg. 3-yr charter rate | $18,250 | $18,544 | $14,079 | $16,063 | $13,076 | $12,626 | $15,344 | Growth rate | | 1.61% | -24.08% | 14.09% | -18.60% | -3.44% | 21.53% |

From the table above, we can find that worldwide iron ore vessel shipments and charter rates had been very strongly associated historically. Iron ore vessel shipments and daily hire rate changed in the same direction. Moreover, 3-yr charter rates changed much more than iron ore vessel shipments, while spot rates tended to fluctuate more widely than 3-yr charter rates. As mentioned above, Australian production in iron ore expected to be strong and Indian iron ore exports expected to take off in the next few years. I expect worldwide iron ore vessel shipments to

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