Essay on Net Present Value and Ocean Carriers - 613 Words

The Charles H. Kellstadt Graduate School of Business DePaul University FIN 555: Financial Management Prof. Randy Fisher Case Study Questions: Ocean Carriers These questions relate to the Ocean Carriers case in your course packet. You can find the data for this case on the course website in a spreadsheet named: Ocean Carriers Exhibits.xls. This case provides the opportunity to make a capital budgeting decision by using discounted cash flow analysis to make an investment and corporate policy decision. Ocean Carriers is a shipping company evaluating a proposed lease of a ship for a three-year period beginning in 2003. The proposed leasing contract offers very attractive terms, but no ship in Ocean Carrier’s current fleet meets†¦show more content†¦How are your results affected? What do you conclude? Useful Hints: a. You need to be consistent in the treatment of the timing of the cash flows in your analysis. To accomplish this, you should assume that all cash flows occur at the end of the year closest to the actual date of the cash flow, so for example if the case states that a cash flow occur in â€Å"January† or â€Å"early† in a specific year, you should assume that it occurs on Dec-31 of the previous year. This is what makes most sense from a financial perspective, as the Present Value of a cash flow will be almost exactly the same whether it occurred on Dec-31 in one particular year, or Jan-1 the following year, as those two dates are just one day apart. (When there is no mentioning in the case of when within a certain year a cash flow occurs, assume that it occurs at the end of the year.) b. As stated in the case, you should assume that operating costs will grow annually at 1% in real terms. You should however be consistently using nominal cash flows while making the cash flow projections. c. Assume that Ocean Carriers has a sufficiently high taxable income in each year so that any tax shields can be used immediately. d. Assume that the ship is depreciated straight-line for 25 years to a remaining book value ofShow MoreRelatedFinance--Ocean Carriers Inc1365 Words   |  6 PagesIntroduction Ocean Carriers Inc. is a shipping company specializing in the operation of capsizes bulk dry carriers. In January 2001, the vice president of finance for Ocean Carriers was evaluating a contract proposal. In the proposed contract, Ocean Carriers would lease one ship to a client for a three year time frame. The customer would begin utilizing the ship in 2003. In 2001, Ocean Carriers did not have a ship that would meet the needs of this customer, and thus was considering purchasing aRead MoreOcean Carriers829 Words   |  4 PagesOcean Carriers Recommendations and Analysis We have carefully reviewed and analyzed the proposal for Ocean Carriers to lease a ship for a three-year period, beginning in early 2003. Our extensive analysis included considering the cash flows over the lifetime of this investment. We concluded that based on the expected future cash flows of this project the opportunity to take on the contract would not be advantageous for Ocean Carriers. We first considered the future expectations of the spot andRead MoreOcean Carriers613 Words   |  3 PagesOcean Carrier Case Study Summary In order to accept the recently submitted leasing contract proposal, Ocean Carriers would have to purchase a new ship. The purchasing of a new ship is a considerable investment. We have analyzed whether or not Ocean Carriers should make this investment using Free Cash Flow and Net Present Value (NPV) analysis. Given the details of the contract, the forecasted daily time charter rates, and the costs data; we have concluded that Ocean Carriers should not acceptRead MoreOcean Carriers Essays1200 Words   |  5 PagesOcean Carrier Case Study INDEX Case Background ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·3 Dilemma ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·3 Scenarios under different tax rates and years  ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·3 Alternative ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·5 Decision summary ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·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 customerRead MoreOcean Carriers Case Report Essay1447 Words   |  6 PagesOcean Carriers Case Report Executive Summary Ocean Carriers is evaluating a proposed lease for a ship over three years starting in 2003. Currently, Ocean Carriers does not have any ships that are available to meet this customer demand. This report will assist VP of Finance Mary Lynn to make a decision on whether or not to commission a new carrier and how long to hold on to this asset. Based off a financial analysis using the data Ocean Carriers has provided, the final recommendation is thatRead MoreCase Study: Ocean Carriers1563 Words   |  7 Pageswhich wants a contract of only 3 years. Based on the calculations of the costs of construction against the value of the contract, it is recommended that Ocean Carriers not go ahead with the construction. However, if a strategic alliance can be created with another carrier to lease their vessels, Ocean Carriers should accept the contract. If the strategic alliance is mutual, Ocean Carriers should build the vessel to add on to its own fleet. Key Financial Issues Mary Linn has to deal with the followingRead MoreCase Study1046 Words   |  5 PagesMemorandum To: CEO, Ocean Carriers Re: Ocean Carriers Capital Budgeting Mary Linn, Vice President of Finance, has been approached by a potential customer with a proposed lease of a ship for a three-year period, beginning in early 2003. The terms are very attractive but we currently do not have a ship that meets this customer’s needs. Ms. Linn has asked Group 4 to research three proposed scenarios to determine whether or not commissioning a new capesize carrier for this customer willRead MoreOcean Carriers751 Words   |  4 PagesCase 1: Ocean Carriers We think that daily spot hire rate will likely decrease next year. There are two reasons. First, there are 63 new vessels scheduled for delivery in 2001 to increase the supply of vessel and only few old vessels need to be retired, while the demand will not increase because imports of iron ore and coal would remain stagnant over next two years. Second, exhibit 5 shows that avg. spot rate of 2000 was higher than the rate of previous years and avg. 3-yr charter rate. In additionRead MoreA Case Study Of Ocean Carriers Essay1425 Words   |  6 PagesA CASE STUDY OF OCEAN CARRIERS EXECUTIVE SUMMARY Ocean Carriers, a shipping company, is evaluating a proposed lease for a ship over three years starting in year 2003. Currently, Ocean Carriers has no available ship that meets the customer’s requirement, because the vessels available in Ocean Carriers fleet are either on lease or are too small for the required purpose. The goal of this report is to assist the Vice President of Finance of Ocean Carriers, Mary Lynn to make a decision on whether or notRead MoreOcean Carriers2562 Words   |  11 PagesOcean Carriers Inc. was approached in January of 2001 with a contract proposal for the leasing of one of their ships for a term of 3 years beginning in 2003. Ocean Carriers currently has no ship to accommodate the customer. To commission the construction of a new vessel would take 2 years from start to completion. The average rate in the spot market is $22,000 per day. Ocean Carriers deployed a younger fleet than average carriers and generally earned a 15% premium over the aver age daily rate