Npv of Ocean Carriers free essay sample

After considering alternative investment opportunities and risk mitigation strategies it was found that it is a good opportunity to invest in commissioning of new ship, provided the Ship is registered in HK instead of NY. The analysis carried out based on certain assumptions, limitations and approach adopted are described in sections below throughout this document. 1. 2 Scope The scope of this study is based on the available information extracted from the case study â€Å"Ocean Carriers 9-202-027, Rev. April 18, 2002† and the guidelines provided by Dr. Fitzsimmons in enabling us to make acceptable assumptions. Project investment decision is based on the NPV of the project carried out based on these assumptions, limitations described in sections below and available data from case study. 1. 3 Assumptions The table below lists all the assumptions that have been made in order to carry out the NPV analysis. A1. For all practical purposes 365 days in a year is considered. We will write a custom essay sample on Npv of Ocean Carriers or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Thus Leap year concept is not used. A2. 16 days of ship maintenance is considered for Ship older than 10 years until 25 years. A3. For ship is registered in HK the taxes on Profits is Zero. Whereas ship registered in New York the tax applicable on profits is 35%. A4. A discount rate of 9% is used to calculate PV in both cases, i. e. , ship is registered in US or HK A5. As mentioned in the case study the expected rate of inflation is 3% A6. The capital expenditure for the period at the end (i. e. , case_1 for 25th year or case2 for 15th year) would not be done as at the end of this period the ship would be scrapped or sold in second hand market. A7. The working capital would be all liquidated and OCI will be able to realize the total value. A8. The given Salvage value at end of 15th year ($5millions), is retained same until year 25th year based on the assumption that due to additional wear and tear of the ship for 10 more years (=25-15). Hence the FV of the Salvage value at end of 25th year by the percentage of Inflation (3%) is not estimated, as this consideration will increase the salvage value at end of 25th year. A9. Ship is delivered in beginning of year 2003 and the leasing of ship starts immediately. A10. Daily operational costs are estimated 1% above the 3% Inflation rate mentioned in the case study. A11.