presented by Franko Kulaga Guergana Anguelova Moritz Broelz Agenda Introduction Project Factors Methodology Results Sensitivity Analysis Recommendations Discussion Introduction Ocean Carriers owns and operates Capesize vessels that carry iron ore worldwide ID: 146552
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Slide1
Ocean Carriers
presented byFranko KulagaGuergana AnguelovaMoritz BroelzSlide2
Agenda
IntroductionProject FactorsMethodologyResultsSensitivity AnalysisRecommendationsDiscussionSlide3
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.Slide4
January 2001: proposed lease of a ship for 3 years beginning in early 2003Daily charter rate: $20,000 per day, with annual escalation of $200 per dayNo 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)Project factorscustomers’ proposalSlide5
Methodology
Yearly Operating Costs‘ Growth = 1% + Inflation (3%) ∆ Net working Capital = Inflation1.
2.
Calculate net
cashflows
for every year
Slide6
Results
1. Actual cost of the new capsize vessel:Capesize is bought in 3 installments discounted at 9% = $33,738,397.44 IRR = NPV of 0 = Break-even WACC
2.Slide7
NPV At Different Deviations From Base
Deviation from Base CaseOperating Cost Growth RateAvg. 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
$ 235,847
$ (6,631,602)
$ 4,964,848
0
$ 1,212,475
$ 1,212,475
$ 1,212,475
$ 1,212,475
15%
$ 232,610
$ 2,216,939
N/A
$ (1,844,225)
30% $ (828,474) $ 3,250,087 N/A $ (4,349,700)Range $ 3,784,076 $ 3,963,856 $ 15,688,155 $ 13,953,176
Sensitivity Analysis
This is the
best case
scenario (25 year – no tax)! What if an important variable changes to an adverse condition?Slide8
Recommendations
Verify Consultant Firm Projections!Slide9
Recommendations
Caution:Worldwide capesize fleet relatively newIn market downturn -> excess capacity (supply)!What would happen to spot-charter rates?Slide10
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
Sweden24Venezuela20Kazakhstan15Mauritania11Other countries43
Total world
1690
Estimated iron ore production in million metric tons for 2006 according to U.S. Geological Survey
- wikipedia.orgSlide11
Recommendations
Importance of NPV?Economic profits (NPV) are “excess” returnsAll projects earn zero “excess” returns in a long-term competitive equilibriumDoes Ocean Carriers differ from the theoretical “long run competitive equilibrium”? 25 Years!Positive NPV illusionary!?
Can this decision be made with the provided information?Slide12
Discussion
Any questions