Summer Analyst

Contents

I. Executive Summary (Ben) 3

II. Business Analysis (Elie) 3

III. NPV Calculation(Ben) 3

IV. Sensitivity Analysis (Jing) 3

V. Conclusion (Jing) 3

VI. Reference 3

I. Executive Summary (Ben)

II. Business Analysis (Elie)

Talk about how the ocean career's business is conducted.

The future prospect of the market.

Refer to the PPT I have attached.

III. NPV Calculation(Ben)

Cash flow = (rev-cost)*(1-tax)+depreciation*tax-capex-NWC increase

Explain each item, like rev numbers are from the consulting company and subjected to estimating error or volatility.

Discuss assumptions: Tax rate, Inflation, Cost of capital, Scrap value

We can use a range of cost of capitals, like from 0% to 15%.

Discuss the option to have 15 years and 25 years.

IV. Sensitivity Analysis (Jing)

How the assumptions, tax rate and cost of capital change will affect the NPV? (I have done this part in the excel)

Does the volatility in the daily hire rate affect the NPV?

Prof. said we don't have to do a lot of work for real option part.

Based on an NPV analysis considering multiple scenarios, Ocean Carriers should commission the construction of a new capesize carrier in the event they are operating with no corporate tax and chartering the ship for its entire 25 year life. Such is the recommendation assuming the forecasted hire rates and estimated costs are accurate over the long-term. However, if Ocean Carriers chooses to adhere to their policy of selling ships at market value after 15 years, they will incur a net loss on the investment regardless of whether operations are based in the United States or Japan.

Future cash flows are based