Business analysis

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OCEAR CARRIERS INTEROFFICE MEMORANDUM TO: MS. MARY LINN, VICE PRESIDENT OF FINANCE FROM: CALEB CHOU, DIRECTOR OF STRATEGIC FINANCE SUBJECT: NEW 180,000 TON CAPESIZE VESSEL DATE: JANUARY 2001 (23/03/09 REWRITE) CC: DR. TOM MILLER, SAINT LOUIS UNIVERSITY DEPT. OF FINANCE We recommend immediately commissioning a new 180,000 ton capesize carrier to increase our capacity to meet dry bulk shipping demands. We conservatively estimate that the new carrier will have a Net Present Value of $407,000 provided the ship operates for 25 years and is delivered by 2003. The new vessel may not be a profitable endeavor should the ship be scrapped at 15 years, per standard Ocean Carriers policy. Our Net Present Value calculations are based on the following conservative assumption: • 9% discount rate for cash flow. Current inflation rate estimates are 3%. A 9% discount rate assumes a significant cost of capital above inflation. Our analysis yielded an IRR of 9.18% over the 25 years. • 1.2% forecasted average daily charter rate growth after 2005. Our shipping-industry consultants provided growth projections for iron ore shipments at 1.5% after 2005. With Australian and Indian ore exports rising in 2003, real growth may very well exceed 1.5%. Should charter rate growth keep up with inflation, NPV would increase significantly. • Market average expected daily hire rates after 2005. Our initial charterer has proposed a three-year charter from early 2003 through 2005. We have assumed that after 2005, the new vessel would be subject to substantially lower market rates. However, our strong relationships with our charterers increases the chance for more longer-term charters at higher rates in the future. NPV increases significantly with each charter of this type. • No scrap value after 25 years. Because we lack data for scrap value after 25 years, we have assumed $0 value

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