Ocean Carrier Case

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Case Study The Three Minions Elisa Colaiacomo Giulia Cova Camilla Georgeon 1712264 1715846 1717776 1 Executive Summary : In our case study, Mary Linn, Vice President of Finance for Ocean Carriers, is considering whether to accept a lease contract from a client starting in 2003. In order to do so, Ocean Carriers would have to build a new capsize carrier. We will see that the decision varies, according to if the company operates in China where no taxes are applied, or in the United States where it would incur a 35% tax. Furthermore, the decision also depends on whether the company will sell the carrier after 15 years or wait until it fully depreciates after 25 years. After our calculations we can say that the Vice President should decide to invest in the ship if the company operates in China, or alternatively if the company, by operating in the US keeps the capsize until the end of its useful life. Briefly, she definitely shouldn’t accept the investment related to the acquisition of the vessel in case it is based in the US and, additionally, wants to sell the ship after 15 years. Summary of Facts : Ocean Carriers Inc. is a shipping Company based in New York and Hong Kong. It possesses and builds capsize dry bulk carriers specialized in the transport of iron ore worldwide. The company does not operate vessels older than 15 years and every 5 years it undertakes a survey (which becomes more and more costly as the vessels get older) to assess the state of the ship. Such surveys are capitalized as expenditures and depreciated on a straight line basis. After their 15th year of useful life, capsizes are either sold on the secondhand market or scrapped for a value of $5M. 2 The

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