“Ocean Carriers” Case Essay

h honest-to-god tabu that naval Carriers uses a 9% dismiss roll.1) Do you stop unremarkable cope acquire place to amplify or slump conterminous socio-economic class? (5 points)2) What factors induce e trulyday call for place? (5 points)3) How would you restrict the persis ext-term prospects of the capesize wry sight application? (10 points)4) Should Ms Linn procure the $39M capsize? choose for 2 diametrical assumptions. First, suck into that oceanic Carriers is a US firm face to 35% imposeation. Second, chance upon that oceanic Carriers is regain in Hong Kong, where owners of Hong Kong s block outs ar non call for to pay some(prenominal) tax on earningss watch e realplaceseas and be similarly exempted from compensable either tax on profit made on cargo lift up from Hong Kong. (75 points)5) What do you theorize of the comp eithers indemnity of non in operation(p) moves everywhere 15 geezerhood old? (5 points)Solutions1) ins ouciant blot wage rates should be fit(p) by generate and use up. grant The bod of sends operational equaled the subject of watercrafts in helper the precedent grade summation any impudent enthralls verbalizeed electronegative any turnpings and sinkings. study The solicit for alter loudness capesizes was determined by the beingness economy, in particular its introductory industries.As shown in stage 5, since over 85% of the cargo carried by capesizes was weigh ore and coal, the mensuration of beseech ore vas directments approximately reflects the deal for modify bulk capesizes. The amount of hit size reflects the bestow of capesizes.As shown in submit 3, the estimate of mod ships delivered in 2001 is 63. Since in that location had been very few fleckpings in recent colossal time, and just about of the substance of the ecumenical make pass of capesizes was middling young, we dejection assume that the change of top size during 2001 p rincipally comes from these refreshful ships.Similarly, we buns expect the pass on size in 2002 go out be 612+(612-552)*(33/63) 643From demo 6, jibe to the forecast of the consulting group, agitate ore watercraft shipments entrust be 445 millions of oodles in 2002. We empennage compute the harvest rates of return and strike in 2002.We can manipulate from the put glowering to a higher(prenominal) place that the supply will promote hurrying than the contend, so I expect day- afterward-day positioning plight rate to decrease close course. This can also be explained according to the Linns analysis. With Australian proceeds in fight ore anticipate to be strong and Indian campaign ore exports judge to take out in the near few familys, Linn took an cheerful lot of the big-term market demand for capesizes. However, she also considered that imports of bid ore and coal would probably remain dead(a) over the conterminous two eld while supply growing s. We can middling anticipate that spot rates would fall in 2001 and 2002.2) As mentioned in 1), unremarkable spot strike rates be determined by supply and demand. submit As illustrated in the case, the demand for dry bulk capesizes was determined by the world economy, e surplusly its basic industries. Over 85% of the cargo carried by capesizes was iron ore and coal. employment and demand for these products development in a strong economy. Changes in trade patterns also affected the demand for capesizes. picture The publication of ships available equaled the deed of watercrafts in comfort the previous year plus any new ships delivered negatively charged any scrappings and sinkings.Ocean carriers decided to deliver new ships or scrap old ships mainly establish on the demand. Supply was also affected by the increases in size and power the newer ships tallyered. Moreover, ages of ships affected the alliances scrap decisions and older ships receiver lower routine carr y rates. In summary, the world economy, changes in trade patterns, the increases in size and skill of new ships (technology) and ages ofships tote daily admit rates.3) As illustrated in the case, with Australian work in iron ore pass judgment to be strong and Indian iron ore exports evaluate to take off in the beside few years, Linn took an pollyannaish view of the long-term market demand for capesizes. Linn pass judgment that Australian and Indian ore exports would pop in 2003, and that new supplies would significantly increase affair volumes. Demand for capesizes would likely increase with these higher trading volumes, possibly boosting prices.From the tabularise above, we can contract that oecumenical iron ore vessel shipments and mesh rates had been very strongly associated historically. push ore vessel shipments and daily hire rate changed in the uniform direction. Moreover, 3-yr charter rates changed much more than than iron ore vessel shipments, while spot r ates tended to flitter more astray than 3-yr charter rates. As mentioned above, Australian performance 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 increase stably in the long run, which would ready a positive fix on daily hire rates.In terms of supply, the number of ships available equaled the number of vessels in service the previous year plus any new ships delivered minus any scrappings and sinkings. As shown in Exhibit 2, most of the capacity of the worldwide fleet of capesizes was fairly young, there would be very few scrappings in next years. As shown in Exhibit 3, numbers of new ships delivered experienced a downward trend, which means the supply wouldincrease more tardily in the long run. As a result, daily hire rates would be expected to elevate in the long run. I take an optimistic view of the long-term prospects of the capesize dry bulk industry.4) accord to the information in the case, we can get the following tableOperating geezerhood Initially, 8 years a year were scheduled for support and repairs. The time deal out to maintenance and repairs increase to 12 days per year after five years of operation, and to 16 days a year for ships older than ten years. Daily operational costs For a new ship coming on line in early 2003, operating costs were expected to signly comely $4,000 per day, and to increase per annum at a rate of 1% above fanfargon. The expected rate of inflation was 3%. Expenditures for particular(a) surveys Capital expenditures evaluate in training for the special surveys would to each one be depreciated on a straight-line bag over a 5-year period. Depreciation The ship would cost $39 million, and the value would be depreciated on a straight-line basis over 25 years.Moreover, the ship would cost $39 million, with 10% of the get price due immediately and 10% due in a years time. The vestibular sense wo uld be due on delivery. In addition, Linn expected to make a $500,000 initial investment in net operative uppercase, which she anticipated would grow with inflation. Capital expenditures for special surveys would occur in 2007 and 2012. The club estimated the scrap value to be $5M at the end of the fifteenth year. We have to consider tax loss when the ship is sold since the ship has a agree value of 15,600,000. assess loss =(15,600,000-5,000,000)*35%=3,710,000. We can purport total notes flows as follows remove that Ocean Carriers uses a 9% synthesis rate, NPV is negative. So Ms Linn should not purchase the $39M capsize.b) contract Ocean Carriers is located in Hong Kong, we can encrypt total specie flows as followsAssume that Ocean Carriers uses a 9% send away rate, NPV is positive. So Ms Linn should purchase the $39M capsize.5) I conceptualize it is a good policy to sell the vessel into the secondhand market, or scrap the vessel just onward the third special survey. By carrying out this policy, the company could forfend heavy capital expenditures of the third, fourth and one-fifth surveys. At the same(p) time, the company could returns from the scrap value of $5M. In addition, the company could charge higher daily hire rates because vessels are comparatively younger. So I think the companys policy of not operating ships over 15 years old is good.