Ocean Carrier

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Financial Management

Read ‘Ocean Carriers’ and answer the following questions:

Ocean Carriers uses a 9% discount rate.
1.Do you expect daily spot rate to increase or decrease next year? - The expected daily hire rates drives the daily spot rates higher. So we are expecting the higher daily spot rates under higher expected daily hire rates. 2. What factors drive average daily hire rates?

- Demand in iron ore shipments,
- World economy, strong economy in western countries will raise the demands in iron for manufacturing and construction. - The number of available vessels
- Vessels route patterns, vessel would be held longer under longer route patterns.

3.Should Ms. Linn purchase the $39M capesize? Make two different assumptions. First, assume that Ocean Carriers is a US firm subject to 35% taxation. Second, assume that Ocean Carriers is located in Hong Kong, where owners of Hong Kong ships are not required to pay any tax on profits made overseas and are also exempted from paying any tax on profit made on cargo uplifted from Hong Kong. -( I think after we all done with the chart, we will have the negative NPV for the assumption one (in US with 35% tax) and the positive NPV for the second assumption (Hong Kong with no tax). this means we should go with the positive NPV and pick the second assumption)

4. What do you think of the company’s policy of not operating ships over 15 years old? If the company operates the over 15 years old vessels, their survey cost would be higher and higher survey cost would reduce the positive cash flow. The company`s policy is correct they are not suppose to operate any vessel older than 15 years old
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