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