Case Study: “Ocean Carriers”
Your analysis must address the following specific questions:
What factors drive average daily hire rates? Do you expect daily spot hire rates to increase or decrease in the next 2 to 3 years?
Based on the projections provided in the case, compute the incremental free cash flow each year if the company purchases the capsize and operates it till age 25.
What do you think of the company’s policy of not operating ships over 15 years old?
Based on your analysis, should the firm scrap the new ship at 15 years of age or continue operating it till age 25?
Should Ms. Linn purchase the $39 million capsize?
Your analysis so far has been based on the assumption of a 35% tax rate. Suppose instead that the company is located in Hong Kong, where shipowners are exempt from paying any tax on profits. How will this affect your analysis of questions 2 through 4 above?