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)

Yearly Operating
Costs Growth = 1% +
Inflation (3%)
Net working
Capital = Inflation

1.
2.
Calculate net cashflows for every year

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

IRR = NPV of 0 = Break-even WACC

2.
NPV At Different Deviations From Base
Deviation from
Base Case
Operating Cost
Growth Rate
Avg. Daily Charter
Growth Rate
Numbers of days
operating
WACC
-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
This is the best case
scenario (25 year no tax)!
What if an important
variable changes to an
adverse condition?
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)
Gaining a new customer:
Who?
How much business in the future?
What about Iron Ore markets apart
from Australia & India?





Country Production
China 820 (2009
Australia 470 (2009)
Brazil 250
India 150
Russia 105
Ukraine 73
United States 54
South Africa 40
Iran 35
Canada 33
Sweden 24
Venezuela 20
Kazakhstan 15
Mauritania 11
Other countries 43
Total world 1690
Estimated iron ore production in million metric tons for
2006 according to U.S. Geological Survey - wikipedia.org
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