Ocean Carriers Case Report
Ocean Carriers is evaluating a proposed lease for a ship over three years starting in 2003. Currently, Ocean Carriers does not have any ships that are available to meet this customer demand. This report will assist VP of Finance Mary Lynn to make a decision on whether or not to commission a new carrier and how long to hold on to this asset.
Based off a financial analysis using the data Ocean Carriers has provided, the final recommendation is that Ocean Carriers should build a new ship out of its Hong Kong base where the tax rate is 0% and scrap the ship when it is 25 years old. Following this recommendation would be the only scenario where Ocean Carriers sees a positive net present value …show more content…
It should be noted that Ocean Carriers would not capture the entirety of the buyer’s willingness to pay. To calculate the buyer’s highest bid, we do a similar calculation but ignore depreciation. The buyer’s highest bid for the carrier is actually $16,211,425, which would actually result in a negative NPV for the buyer. However, even at the highest willingness to pay for the carrier, Ocean Carriers would still have a negative NPV of –$113,469, resulting in our recommendation to