Ocean Carriers Essay
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Iron ore and coal imports will most probably decrease the upcoming year With the increasing supply of vessels should result in a market surplus By creating this surplus, prices will be driven down, since we will have limited demand and suppliers competing
Average daily rates, based on historical numbers, have a direct relationship with the number of shipments.
Only Accept the project if we sell after 25 years in a tax free environment Reject all of the following; sell after 15 years in both a tax and tax free environment, also after 25 years with a tax environment
The longer the wait to sell; the better
How Long Should Vessels Operate?
The company’s current policy is to not operate ships older then 15 years old If Ocean Carrier operates for 25 years the NPV will be higher then if they operate for 15 years and sell the scrap metal (,368,557 vs.
$2,238,411) The present value of the future cash flows exceeds the value of selling the scrap metal 10 years earlier.
Hence there is greater value operating the vessel for an additional 10 years/
Iron and coal’s demand is expected to increase annually and the charter rates are expected to increase by annually for the life of the vessel. The company can generate more income if they decide to operate the ship for an additional 10 years.