Lecture Note 6 (Case Ocean Carrier)

Lecture Note 6 (Case Ocean Carrier) - LectureNote6...

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Lecture Note 6 Case study “Ocean Carriers”
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Introduction In January 2001, Mary Linn, Vice President of  Finance of Ocean Carriers, a shipping  company with offices in New York and Hong  Kong, was evaluating a proposed lease of a  ship for a three year period, beginning in early  2003. The customer  was eager to finalize the  contract to meet his own commitments and  offered a very attractive terms.               Next  Page
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No ship in Ocean Carrier’s current fleet met  the customer’s requirements. Linn, therefore,  had to decide whether Ocean Carriers should  immediately purchase a new capesize carrier  (a large cargo ship) that would be completed  two years hence and could be leased to the  customers.                        Next Page
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However, the proposed contract with the  customer is only for three years. Therefore,  after the three years, the ship will have to be  leased for other customers. It is Linn’s responsibility to decide if future  market conditions warranted a considerable  investment in the new ship. The objective of this case study is to estimate  the net present value of the investment in the  new capesize carrier.
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The case presents necessary information for  you to compute the net present value of the  project. However, before computing the net present  value of the project, let us look at the  following two items 1. How the Capesize Carriers’ business is  conducted. 2. The future prospect of the market.
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How the Ocean Carrier’s business is  conducted. A capesize carrier is a large ship too large to  go through the Panama Canal, thus has to go  through the Cape Horn to travel between the  Atlantic and Pacific oceans. Ocean Carriers’ vessels were mostly charted  on a “time hire” basis for a period such as one  year, three year or five years. However, spot charter market is also available.
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How the Ocean Carrier’s business is  conducted. (Contd) The customer of Ocean Carriers who charters  a vessel pay a  daily hire rate  for the entire  length of the contract.  Thus, the daily hire rate as well as the number 
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This note was uploaded on 11/29/2011 for the course HADM 4630 taught by Professor Ukhov during the Fall '11 term at Cornell University (Engineering School).

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Lecture Note 6 (Case Ocean Carrier) - LectureNote6...

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