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?

Deviation from
Base Case
-30%
-15%
0
15%
30%
Range

NPV At Different Deviations From Base

Operating Cost
Avg. Daily Charter
Numbers of days
Growth Rate
Growth Rate
operating
$ 2,955,603
$
(713,769)
$ (14,475,679)
$ 2,118,038
$
235,847
$ (6,631,602)
$ 1,212,475
$
1,212,475
$ 1,212,475
$
232,610
$
2,216,939
N/A
$ (828,474)
$
3,250,087
N/A
$ 3,784,076
$
3,963,856
$ 15,688,155

WACC
$
$
$
$
$
$

9,603,476
4,964,848
1,212,475
(1,844,225)
(4,349,700)
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
Who?
How much business in the future?

What about Iron Ore markets apart

from Australia & India?

Estimated iron ore production in million metric tons for

2006 according to U.S. Geological Survey - wikipedia.org

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

Importance of NPV?
Economic profits (NPV) are excess returns
All projects earn zero excess returns in a longterm 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