1. presented by Franko Kulaga Guergana Anguelova Moritz Broelz
Ocean Carriers
presented by
Franko Kulaga
Guergana Anguelova
Moritz Broelz

2. Agenda Introduction Project Factors Methodology Results
Sensitivity Analysis
Recommendations
Discussion

3. Introduction
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.

4. Project factors customers’ proposal
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)

5. Methodology Calculate net cashflows for every year 1. 2.
Yearly Operating Costs‘ Growth = 1% + Inflation (3%)
∆ Net working Capital = Inflation

6. Results 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

7. Sensitivity Analysis
This is the best case scenario (25 year – no tax)! What if an important variable changes to an adverse condition?
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
$ ,847
$ (6,631,602)
$ 4,964,848
$ 1,212,475
$ ,212,475
$ 1,212,475
15%
$ ,610
$ ,216,939
N/A
$ (1,844,225)
30%
$ (828,474)
$ ,250,087
$ (4,349,700)
Range
$ 3,784,076
$ ,963,856
$ 15,688,155
$ 13,953,176

8. Recommendations
Verify Consultant Firm Projections!

9. Recommendations Caution: Worldwide capesize fleet relatively new
In market downturn -> excess capacity (supply)!
What would happen to spot-charter rates?

10. Recommendations 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

11. Recommendations 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?

12. Discussion
Any questions