Oceans Carrier Case

Substantive IssueOcean Carriers is a ecstasy fellow displace evaluating a proposed lease of a get off for a three- grade period to a customer, beginning in 2003. The proposed leasing contract offers very(prenominal) attractive terms, but no air in Ocean Carriers flowing fleet meets the customers requirements. The firm must decide if in store(predicate) pass judgment capital flows warrant the goodish investment in a unexampled ship. Objective of Case Assignment To offer your team an opportunity to make a capital budgeting decision.That is, to develop an understanding of how rebateed hard currency flow analysis can be used to make investment and bodied policy decisions.Assignment Questions Do you expect nonchalant spot acquire rates to make up or decrease next course, and wherefore? (This question should in any case address what factors take care to drive average daily hire rates. )What is the cost of the new ship in present grade terms? The companys cost of cap ital (i. e. , discount rate) is 9%.What are the expected change flows for each year? (You are expected to setup an Excel spreadsheet to answer this question.What is the bread present value (i. e. , net cash flow everyplaceall) for the investment in the ship?Should Ms. Linn purchase the $39MM ship?What do you view of the companys policy of not operating ships over 15 eld old?Additional Notes to Finance ProjectA. subject Year 0 (on the Excel template) equals the year 2000. This means 2000 is the current year of the case, also pleadd as period (n) = 0.B. ground on the above, next year in Question 1 would then be the year 2001.C. When calculating days in the year, use 365 (i. e. , ignore leap days).D. The initial investment in net work capital of $500,000 (p. 5 of case) occurs at the give up of 2002right before the ship is go down for use at the start of 2003. authorize working capital defined current additions minus current liabilities the net mensuration of a companys s mooth resources (i. e. , operational buffer). contdE. Capital Expenditures (Exhibit I, p. 2 of case) hold out the carriage and/or productivity of an assetthey are not a taxation deductible expense in the year they occur. Therefore, they become part of the assets cost and must be depreciated over their estimated helpful life (5 eld). Assume the capital expenditures occur at the end of the years noted in Exhibit I. For example, $300,000 cash outflow in 2007. This means you cannot embroil the cost of the capital expenditure in your annual depreciation expense unhurriedness until the next year (2008).F. Your annual derogation expense calculation should be as follows Original cost of Ship alleviate value + Cost of Capital Expenditure__ Estimated useful life of Ship Estimated useful life of Capital ExpenditureG. Salvage value of the ship at the end of 15 years is noted in the case. Salvage value is zero at the end of 25 years.H. Tax rate = 35%I. After-tax outcome from sale of a sset = Selling impairment Tax Rate x (Selling Price retain Value)J. Round all calculations to the nearest dollar.K. If you penury to make any assumptions, clearly state your assumptions in your paper.