Business Manager

The key objective is to enhance your understanding of how discounted cash flow analysis can be used to make investment and corporate policy decisions. The case provides the opportunity to make a capital budgeting decision -- your primary task is to forecast expected future cash flows given the information in the case, and then estimate the net present value of the decision Ms. Linn faces. Assume the cost of capital is 9%.

Deliverable: For this case analysis, your deliverable should be one Excel spreadsheet (start with the exhibits below). Complete the capital budgeting analysis ("NPV" tab). Also, in a separate tab ("Q&A" tab), briefly answer the questions below. Be sure to use the proper file naming convention, and be sure to put your team name and team member names within the file (Q&A tab).

In performing your analysis and preparing your recommendation, consider/address the following questions.

1. What factors drive average daily hire rates?

o Do you expect daily spot hire rates to increase or decrease next year?

o How would you characterize the long-term prospects of the capesize dry bulk industry?

2. What do you think of the company's policy of not operating ships over 15 years old? Analyze this decision and make a recommendation.

3. Should Ms. Linn purchase the $39m capesize?

o Consider 2 different scenarios. First, assume that Ocean Carriers is a U.S. firm subject to a 35% tax rate. Second, assume that Ocean Carriers is located in Hong Kong, where owners of Hong Kong ships are not required to pay any tax on profits made overseas and are also exempted from paying any tax on profit make on cargo uplifted from Hong Kong.

o Provide a brief 2-way sensitivity analysis table where you analyze the NPV under the 2 assumptions above (U.S. vs. Hong Kong) and across discount rates ranging from 8% to 10%. If you believe additional sensitivity analysis is important to support your decision, please provide that as well.