Vlueco
1. Introduction & Case Assumptions
The purpose of this Mini-case analysis is to go through the different possibilities for replacing or upgrading/overhauling ‘Vital Spark’ a cargo ship owned and operated by NETCO (The New Economy Transport Company).
The part A of the case study focuses on the different options/projects available for the company to upgrade/overhaul the ‘Vital Spark’ cargo ship.
The first option in this regard is to maintain existing engine and systems without installing a brand new engine or control system. This will necessitate a CAPEX investment of $820000 broken down as follows:
The second option is much more comprehensive and includes the installation of a new engine and a new control system. This is expected to cost $600000 more in CAPEX than the first option as specified in the case text. So this will necessitate $142000 in CAPEX.
Projected Operating costs are also different for the two maintenance/overhaul options outlined. Maintenance without engine replacement & control system will generate high annual operating expenses at $1181000 in year 1 while the second option will only generate $1020000 in operating expenses for the same year. Operating expenses are expected to grow at the 2.5% inflation rate so option 1 (without engine) will generate higher Operational costs over the expected 12 years useful life of the ‘Vital Spark’ cargo ship in comparison with option 2 (new engine and control system).
There will be no cash flow stemming from the sale of ‘Vital Spark’ after its 12 years expected useful life after maintenance since the case clearly specifies that the salvage value of the vessel once taken out of service will be trivial.
No specific changes in working capital will be induced by the two proposals either.
Sales in the model are expected to grow at the same rate as inflation and CAPEX investments will be depreciated on an 8 years period using the MACRS method.
In summary, except for differing CAPEX investments
The purpose of this Mini-case analysis is to go through the different possibilities for replacing or upgrading/overhauling ‘Vital Spark’ a cargo ship owned and operated by NETCO (The New Economy Transport Company).
The part A of the case study focuses on the different options/projects available for the company to upgrade/overhaul the ‘Vital Spark’ cargo ship.
The first option in this regard is to maintain existing engine and systems without installing a brand new engine or control system. This will necessitate a CAPEX investment of $820000 broken down as follows:
The second option is much more comprehensive and includes the installation of a new engine and a new control system. This is expected to cost $600000 more in CAPEX than the first option as specified in the case text. So this will necessitate $142000 in CAPEX.
Projected Operating costs are also different for the two maintenance/overhaul options outlined. Maintenance without engine replacement & control system will generate high annual operating expenses at $1181000 in year 1 while the second option will only generate $1020000 in operating expenses for the same year. Operating expenses are expected to grow at the 2.5% inflation rate so option 1 (without engine) will generate higher Operational costs over the expected 12 years useful life of the ‘Vital Spark’ cargo ship in comparison with option 2 (new engine and control system).
There will be no cash flow stemming from the sale of ‘Vital Spark’ after its 12 years expected useful life after maintenance since the case clearly specifies that the salvage value of the vessel once taken out of service will be trivial.
No specific changes in working capital will be induced by the two proposals either.
Sales in the model are expected to grow at the same rate as inflation and CAPEX investments will be depreciated on an 8 years period using the MACRS method.
In summary, except for differing CAPEX investments
References: The Nutritional Business Journal – Market data projections for the nutritional supplements Industry can be found in the following article : http://newhope360.com/supplements/infographic-highlights-2013-supplement-business-report Investment Banking: Valuation, Leveraged Buyouts, and Mergers & Acquisitions, 2nd Edition (Wiley Finance) EDGAR Company filings database 8. Annex and Supporting Excel Models: In our Analysis of Natural Alternatives International we performed both a DCF analysis and a Company comparables Analysis for our valuation linked below: DCF Valuation Model : Company Comps Analysis & Football field valuation summary :