presented by

Franko Kulaga
Guergana Anguelova
Moritz Broelz
Introduction
Project Factors
Methodology
Results
Sensitivity Analysis
Recommendations
Discussion
Ocean Carriers owns and operates Capesize
vessels that carry iron ore worldwide.
Round cape horn– longer and riskier routes.
Mainly chartered for 1-, 3-, or 5-year periods,
occasional spot market charter.
January 2001: proposed lease of a ship for 3
years beginning in early 2003
Daily charter rate: $20,000 per day, with
annual escalation of $200 per day
No ship in fleet meets the requirements
Commission a new capsize carrier?
Option 1: Ocean carriers is US firm (35% tax)
Option 2: Ocean carriers is HK firm (0% tax)
1.
2.  Calculate net cashflows for every year
 Yearly Operating
Costs‘ Growth = 1% +
Inflation (3%)
 ∆ Net working
Capital = Inflation


1. Actual cost of the new capsize vessel:
Capesize is bought in 3 installments discounted at
9% = $33,738,397.44

2.

IRR = NPV of 0 = Break-even WACC

This is the best case
scenario (25 year – no tax)!
What if an important
variable changes to an
adverse condition?

NPV At Different Deviations From Base

Deviation from Operating Cost Avg. Daily Charter Numbers of days WACC
Base Case Growth Rate Growth Rate operating
-30% $ 2,955,603 $ (713,769) $ (14,475,679) $ 9,603,476
-15% $ 2,118,038 $ 235,847 $ (6,631,602) $ 4,964,848
0 $ 1,212,475 $ 1,212,475 $ 1,212,475 $ 1,212,475
15% $ 232,610 $ 2,216,939 N/A $ (1,844,225)
30% $ (828,474) $ 3,250,087 N/A $ (4,349,700)
Range $ 3,784,076 $ 3,963,856 $ 15,688,155 $ 13,953,176
Verify Consultant Firm Projections!
Caution:
Worldwide capesize fleet relatively new
In market downturn -> excess capacity (supply)!
What would happen to spot-charter rates?
 Practical implications possibly influencing decision:
Seek less expensive financing (BEP = IRR)
Country Production
Gaining a new customer: China 820 (2009
Australia 470 (2009)
Who? Brazil 250
How much business in the future? India 150
Russia 105
What about Iron Ore markets apart Ukraine 73
United States 54
from Australia & India? South Africa 40
Iran 35
Canada 33
Sweden 24
Venezuela 20
Kazakhstan 15
Mauritania 11
Estimated iron ore production in million metric tons for Other countries 43
2006 according to U.S. Geological Survey - wikipedia.org Total world 1690
Importance of NPV?
Economic profits (NPV) are “excess” returns
All projects earn zero “excess” returns in a long-
term competitive equilibrium
Does Ocean Carriers differ from the theoretical
“long run competitive equilibrium”?  25 Years!
Positive NPV illusionary!?

Can this decision be made with the provided

information?
Any questions