Ocean Carriers Inc is a shipping company that owns and operates capsize dry bulk

carriers that mainly carry iron ore and coal worldwide, with offices in New York and
Hong Kong.
In 2001 Ocean carriers received an offer to lease a Ship for three years starting in
2003. But the ocean carrier's current fleet doesn't meet customers' requirements.
Ocean Carriers must decide whether to accept or not a ship-building project which
costs approximately $39 million.
Facts given in the case study: -
❖ Initial capital outflow: $39 Million
➢ 2001 - $3.9 million
➢ 2002 - $3.9 million
➢ 2003 – $31.2 million
❖ Depreciation using the straight-line method for 15 years with a scrap value of $5
million. We are considering 25 years .
❖ The potential charterer offers a rate of $20,000 per day with an annual escalation of
$200 (three-year contract starting in 2003). New ships are subject to a premium price
which will decrease and eventually become a discount as the ship ages.
❖ The assumed Discount rate is 10 %
❖ The assumed Tax rate is 30 %
AG
E EXPECTED
CASH EXPECTE MAINTENAN TOTAL OPERATIN OPERATIN TAX NET ADD BACK PRESENT
YEA OF OPERATIN CASH DEPRECIATIO
OUTFLO D RATE CE DAYS IN A OPERATIN G COST G CASH DEDUCTIO CASHFLOW DEPRECIATIO VALUE OF
R THE G DAYS INFLOW N
W PER DAY YEAR G DAYS PER DAY FLOWS N 30% PER YEAR N CASH FLOWS
SHI PER YEAR
P
₹-
2001 0 3900000 20000 0 0 0 0 0 0 0 0 -3900000 -3900000
39,00,000.00
₹-
2002 0 3900000 20200 0 0 0 0 0 0 0 0 -3900000 -3900000
39,00,000.00
₹-
2003 0 31200000 20400 0 0 0 0 0 0 0 0 -31200000 -31200000 3,12,00,000.
00
₹
2004 1 0 18714 8 357 6680898 365 4000 90000 1370000 479500 4831398 4921398
44,73,998.18
₹
2005 2 0 17283 8 357 6170031 365 4160 90000 1428400 499940 4241691 4331691
35,79,909.92
₹
2006 3 0 17481 8 357 6240717 365 4326 90000 1489136 521197.6 4230383.4 4320383.4
32,45,967.99
543305.50 4216867.0 ₹
2007 4 0 17682 8 357 6312474 365 4499 90000 1552301.4 4306867.056
4 56 29,41,648.15
 566297.72 4201010.7 ₹
2008 5 0 17886 8 357 6385302 365 4679 90000 1617993.5 4291010.778
4 78 26,64,380.09
590209.63 4109953.1 ₹
2009 6 0 18092 12 353 6386476 365 4867 90000 1686313.2 4199953.129
3 29 23,70,764.05
615078.01 3779640.2 ₹
2010 7 0 17428 12 353 6152084 365 5061 90000 1757365.8 3869640.215
8 15 19,85,737.29
640941.13 3750482.4 ₹
2011 8 0 17628 12 353 6222684 365 5264 90000 1831260.4 3840482.463
9 63 17,91,613.41
667838.78 3718393.4 ₹
2012 9 0 17831 12 353 6294343 365 5474 90000 1908110.8 3808393.402
5 02 16,15,130.57
695812.33 3682860.4 ₹
2013 10 0 18036 12 353 6366708 365 5693 90000 1988035.2 3772860.418
6 18 14,54,601.02
3570745.5 ₹
2014 11 0 18243 16 349 6366807 365 5921 90000 2071156.7 724904.83 3660745.514
14 12,83,068.97
755161.02 2239174.0 ₹
2015 12 0 14762 16 349 5151938 365 6158 90000 2157602.9 2329174.055
3 55 7,42,146.63
786627.46 2177133.4 ₹
2016 13 0 14932 16 349 5211268 365 6404 90000 2247507 2267133.497
4 97 6,56,707.82
819352.56 2110936.1 ₹
2017 14 0 15104 16 349 5271296 365 6660 90000 2341007.3 2200936.117
2 17 5,79,575.27
853386.66 2040387.7 ₹
2018 15 0 15278 16 349 5332022 365 6927 90000 2438247.6 2130387.722
5 22 55,09,997.88
888782.13 2437064.5 ₹
0 16 349 365 7204 90000 2539377.5 2527064.551
2019 16 16805.8 5865224.2 1 51 5,49,962.87
18486.3 6451746.6 925593.41 2881600.5 ₹
0 16 349 365 7492 90000 2644552.6 2971600.585
2020 17 8 2 7 85 5,87,915.33
20335.0 7096921.2 963877.15 3379109.4 ₹
0 16 349 365 7792 90000 2753934.7 3469109.405
2021 18 2 8 3 05 6,23,949.82
22368.5 7806613.4 1003692.2 3935229.0 ₹
0 16 349 365 8103 90000 2867692.1 4025229.058
2022 19 2 1 4 58 6,58,157.12
24605.3 8587274.7 1045099.9 4556175.0 ₹
0 16 349 365 8427 90000 2985999.8 4646175.025
2023 20 7 5 3 25 6,90,624.31
27065.9 9446002.2 1088163.9 5248798.5 ₹
0 16 349 365 8764 90000 3109039.8 5338798.511
2024 21 1 3 3 11 7,21,434.89
10390602. 1132950.4 6020650.5 ₹
0 16 349 365 9115 90000 3237001.4 6110650.585
2025 22 29772.5 4 8 85 7,50,668.82
32749.7 11429662. 6880052.7 ₹
0 16 349 365 9480 90000 3370081.4 1179528.5 6970052.756
2026 23 5 7 56 7,78,402.65
36024.7 1227969.6 7836174.6 ₹
0 16 349 365 9859 90000 3508484.7 7926174.628
2027 24 2 12572629 4 28 8,04,709.62
13829891. 1278348.4 8899119.3 ₹
0 16 349 365 10253 90000 3652424.1 8989119.351
2028 25 39627.2 9 3 51 8,29,659.74
• NPV of the company is 28M. Ocean Carrier should accept the offer.
• With Australian and Indian Iron ore production being strong, it will drive up the
demand for capsizes in the future.
• Market conditions also determine daily hire rates. Ocean carriers specialize in
transporting iron ore, and in a strong economy, as demand for such products
increases, the need for shipping vessels increases.
• Overall, the forecast for the long-term prospects of the capsized dry bulk industry
appears to be positive, with an expected increase in vessel shipments.