Npv Analysis

Running Head: Final Project

Final Project

Haozhan Song

Kirby Corp. is already the largest inland transportation company. To expand its business, it should consider entering the global market. The company could start a new business from 2014, because the global economy may start recovering from the recession in this year.

To estimate a perspective of new project in the marine transportation industry, Kirby Corp. could use the Baltic Dry Index (BDI). It is a weighted index of international shipping rates. It measures the demand for shipping capacity versus the supply of dry bulk carriers. The change of the index can show investors an outlook of the entire industry and the index is usually considered a leading index of the dry bulk shipping industry. There is a statement from the research on BDI,

“When reviewing the BDI from 1985, and using written reports on the shipping industry as far back as the early 1970’s, we believe we have uncovered a regular 13 year cycle. It appears every 13 years shipping rates make a cyclical low: 1973-1986-1999-2012. After the low is in place rates generally rise for the next 9 years, then decline 4 years into the next cyclical low. During the 9 year bull market, rates rise for 5 years, decline for 1 year, and then rise for another 3 years into the cyclical peak. In addition, in the early stages after the cyclical low, rates typically triple during the first 2-3 years. This is the recovery stage for the shipping industry” (Elliot Wave, 2012). (See Exhibit 1)

This statement and graph in Exhibit 1 illustrate a study of the dry bulk shipping industry, and the researchers point out that the market of the dry bulk shipping industry will enter a new 13-year cycle. The BDI will increase from 2012. Therefore, there is an opportunity for Kirby Corp. to develop a new business, the international dry bulk shipping. The company can forecast the growth of the future revenue based on research.

One of the reasons to develop a new business...