Ocean Case

Q1. Do you expect daily spot rate to increase or decrease next year (2002)? Daily spot rate will increase as daily hire rate expected grow. Q2. What factors drive average daily hire rates? World economy Demand in iron ore shipments Change in trade patterns

Q3. How would you characterize the long-term prospects of the capesize dry bulk industry? It is stable in that globalization boosts the world's economy which will increase demands for production/shipment of raw materi However, technological advancement (ability to build cheaper and bigger ships) will keep the profitability of the industry in the lo Q4. Should Ms Linn purchase the $39M capesize? No with the assumption 1: Tax applied. Negative NPV of $6M (see cell C46) Yes with the assumption 2: No tax applied. Positive NPV of $4.6M (see cell C47)

Q5. What do you think of the company's policy of not operating ships over 15 years. It is a good policy since survey costs will overweight the positive cash flows from operation as they continue to operate the old s Disc. rate Capsize costs Capsize capacity Tax rate Inflation rate 1% above inflation rate Contract Period Operation cost Daily hire rate under 5-yr Daily hire rate 5-9 yr Daily hire rate 10-14 yr Daily hire arete 15-19 yr Premium 9% 39000000 180000 35% 3% 4% 3 years 4000 1.15 1.05 1.00 0.08 15% Calendar Year Investment Year Age of ship Expected Daily Hire Rate Operational days

2001 0 2002 1

Investments Ship NWC Survey 2007 Survey 2012 Total Operations Revenue Operation costs Depreciations-ship Depreciations-survey 2007 Depreciations-survey 2012

(3,900,000) (3,900,000)

(3,900,000)

(3,900,000)

Operation Income Tax Net Income Net Income w/o tax Add back (non-cash transaction) Depreciations-ship Depreciations-survey 2007 Depreciations-survey 2012 Total Add back Cash flows w/Tax Cash flows w/o Tax NPV w/Tax 6% disc. Rate NPV w/o Tax 6% disc. Rate

(3,900,000) (3,900,000) (6,069,545) 4,623,672 (3,900,000) (3,900,000)

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