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Submitted By:
Fahad Ashraf (13E00003)
Atif Raza (13E00088)
Rana Sohail (13E00075)
Sara Samdani (13E00097)
Nadia Virk (13E00096)
Maira Taj (11E00132)
Case Facts:
Following are some critical facts about the case:
1. Ocean
carriers
provides
capesize
shipping
ships
company
for
the
Case Analysis:
Firm / Industry Analysis:
1. The industry in which Ocean Carriers
operates is highly dependent upon global
economic conditions.
2. Stronger the economy, more the demand of
iron ore & coal.
3. More the demand of iron ore & coal, more
the need of ships for transportation of
material.
4. The demand is dependent on trade pattern.
5. Spot charter rates were more fluctuating as
compared with the contractual rates.
6. Companies
would
prefer
to
have
in
revenue
of
the
company
(ocean
carriers).
8. If the demand of Ore from Australia &
India increases more then what is being
fulfilled by the addition of the new 63
ships, the spot rates will increase.
9. There is always risk associated, as
termination of contract is possible. In this
particular case the risk anticipated by VP
of Finance is low.
10. One of the major risks associated with this
special ship is that, after the termination of
contract with the existing Charter, there
is a strong possibility that might be NO
other Charter seeks for such a special ship.
In that case, Ocean Carriers might have to
bear a loss on daily rates.
Business Analysis:
We made financials of the said project with
different
assumptions
based
on
different
Assumptions:
Registration of Ship in New York
Corporate Tax Rate in US: 35%
Required Rate of Return: 12%
Input Values:
Revues: Daily Charter Rate x (365 Days
of Maintenance)
Operating Expenses: Daily Expenses x 365
(Expenses increase at 4% annual rate)
Survey Cost is Capital expenditures and to
depreciate in 5 years with SL.
Depreciation is taken in 25 Years with
Straight line Method.
Loss in the sale of equipment is taken with
the difference in Net Book value and the
Scrap Value.
Net Income is formulated by difference of
Revenues and Costs.
Survey Depreciation and Ship
Depreciations are added Back.
Capital Cost of Ship, Capital expenditure
of Survey and Injection of NWC is
subtracted.
Disposal of NWC and Disposal of Scrap
Ship is added back in year 15.
Results:
NPV is Negative i.e. - 10,911,334 USD
IRR: 3.8%
NPV is negative and IRR is very low compared
to required rate of return so Miss Mary Linn
should reject this Business option based on
financials and Market analysis.
Scenario No. 2: Hong Kong
Assumptions:
Registration of Ship in New York
Corporate Tax Rate in US: 16.5%
Required Rate of Return: 12%
Input Values:
Revues: Daily Charter Rate x (365 Days
of Maintenance)
Operating Expenses: Daily Expenses x 365
(Expenses increase at 4% annual rate)
Survey Cost is Capital expenditures and to
depreciate in 5 years with SL.
Depreciation is taken in 25 Years with
Straight line Method.
Loss in the sale of equipment is taken with
the difference in Net Book value and the
Scrap Value.
Net Income is formulated by difference of
Revenues and Costs.