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Ocean Carriers

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by

James Y

on 23 October 2012

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Transcript of Ocean Carriers

Ocean Carriers Case Assumptions Optional Questions 1. Opportunity cost is 0.

2. Expected daily hired rate is based on regression analysis.

3. Depreciation is calculated in straight line method for 25 years with salvage value 0

4. OCF is calculated in Bottom-Up Approach (OCF=NI + Depreciation)

5. Assume only real interest rate exists and no difference on risk less and risky interest rate Annual Cost = Daily Cost * Days

Depreciation = Total Value / Life

Net Working Capital = Initial Working Capital * (1+Inflation Rate) ^ Year

Time of Value = Value / (1 + Interest Rate) ^ Year Basic Calculation Hired Rate Calculation Should Ms Linn purchase the $39 capesize? If assume Ocean Carriers is a U.S. firm subject to 38% taxation. Question One 1.Do you expect daily spot hire rates to increase or decrease next year?
Increase.
2.What factors drive average daily hire rate?
Iron ore shipment, age of the ship and subjective judgment.

3.How would you characterize the long-term prospects of the cape size dry bulk industry?
Expanding industry
4.What do you think of the company’s policy of not operating ships over 15 years old?
That’s a wrong decision since NPV declines if that policy is adopted. Regression Line Analysis based on (17713, 20000), (18103, 20200), (18501, 20400) and we can draw a linear line as y=0.51x+11010 Question Two Should Ms Linn purchase the $39 capesize? If assume that Ocean Carriers is located in Hong Kong, where the company can enjoy tax exemption. Thank you ! Tax is the only difference for those two locations in this case. It greatly affect the net income, then OCF as well as IATCF, consequently leading to final present value judgement. 2.What factors drive average daily hire rate?

Iron ore shipment, age of the ship and subjective judgment. 4
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