...Ocean Carriers Analysis Date: 8/29/2007 TO: MS MARY LINN CC: PROF. TOM MILLER FROM: RYAN DALE SEELKE RE: DECISION ON CAPE SIZE CARRIER PRIORITY: Ms Mary Linn, After careful cash flow analysis and a discount rate (WACC) of 9%, commissioning a capsize carrier for 25 years is the only appropriate option for our firm. However, if the discount were instead 10%, both options would fail the NPV test by yielding negative results. I make this recommendation after thorough analysis of estimated cash flow and with the desire that our required 15-year life span will be amended. With the expected 9% discount rate, commissioning a capsize carrier for 15 years and then scrapping it as is company policy would ultimately yield a NPV of (1,252,916). However, if Ocean Carriers decided to commission its ship for 25 years, then the NPV would be a positive 368,557. Since current company policy is to scrap ships after 15 years, management should look at these numbers in detail and consider revising its dated policy. As mentioned above, this recommendation hinges on a 9% discount rate. If our cost of debt or cost of equity would change, then this would change our WACC and thus our discount rate. Therefore, if either the cost of equity or debt increases and our subsequent discount rate were to be 10% rather than the expected 9%, then both options would yield a negative NPV and neither should be undertaken. If the opposite happened, and the discount rate was 8%...
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...Connor Cohn 3/4/11 Curry, period 4 Final Aircraft Carriers in WWII Many of World War II’s greatest battles were fought at sea, making naval technologies crucial to all sides. Many kinds of ships, such as battleships, submarines, and aircraft carriers, had been used in previous wars, but the global nature of World War II made naval battles especially important. These vessels ranged from heavily armed warships to numerous support craft such as fuel ships and troop landing boats. Of all the ships used in the war, aircraft carriers were the largest. Thus, how and why were aircraft carriers so effective in World War II, specifically how was it more effective than a battleship, and how did both Japan and the US utilize this revolution in technology? An aircraft carrier is a ship whose primary purpose is to bring airplanes closer to distant battle areas. Since most World War II aircraft had a range of just a few hundred miles, it was necessary to bring the aircraft to the battlefront, and using a ship to do so made a lot of sense in the Pacific, where much of the fighting took place on islands and along coastal areas. The first true aircraft carriers were built by the Japanese in the 1920’s. Japan remained an innovator in aircraft carrier design and construction during the years leading to World War II, operating nine aircraft carriers by 1941. Their largest carriers of the war were the Akagi and Kaga, each capable of launching over 90 aircraft (doc. Navy), only 25% of these...
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...Saturday March 12, 2011 Growing demand for tiffin carriers Brisk sales since Jan 1 anti-plastic ruling TIFFIN carriers are selling like hot cakes due to the Penang Government’s No Free Plastic Bags policy. Sellers have been enjoying brisk business since Jan 1 when the state government implemented the policy on a daily basis. Tan Saw Bee, who has been selling tiffin carriers for the last 20 years in Sungai Dua and the Chowrasta Market, said she could sell up to 25 tiffin carriers when business was good. “Of course, there are times when I only have two people purchasing them in a day. Still, the number of people buying them has been increasing,” she said. Tan, 55, said the single-tiered stainless steel lunch box, that could also maintain the heat of food kept inside, was gaining popularity. “It is one of the most sellable items among my tiffin carriers. Customers find it convenient especially for takeaways that come with soup. “They can also eat from the lunch box without having to pour them into any bowl,” she said, adding that these lunch boxes were sold from RM15 to RM17 each. Another seller Ch’ng Ah Sim, 34, said more people were going back to the olden days when people carried tiffin carriers for takeaways. “The sales of tiffin carriers have significantly improved, particularly those that can maintain the heat of the food,” she said. Apart from the lunch box, Ch’ng said customers also purchased those in two tiers, three tiers and four...
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...Low Cost Carriers An analysis of the Low Cost Carriers and its model with implications for the future of the industry segment. 2/23/2014 [Student ID Number] [Name] Low Cost Carriers Has there been too much hype about the Low Cost Carrier concept? Characterize the LCC business model, assess their reasons for success and failure, is it a sustainable business model, or is it in transition? Can you provide an outlook for the future of this industry? Before delving into the topic, it is necessary to explain what Low Cost Carriers actually entail and what the underlying concept behind it is. There are different names for the low cost carriers which include budget airlines, discount airlines and even no-frill airlines. The concept behind LCC is to present the customer with a low cost air travel but with fewer benefits (Dresner and Lin, 1996). Since the ticket price is low, the airlines puts a price tag for extras in the flight in order to generate more revenue for the revenue lost through decreased prices on tickets. The airline companies are able to generate a low cost operating structure which allows them to charge a lower price and hence maintain a reasonable amount of profitability. In order to analyze the topic, it will be needed to trace the history of the pioneering Low Cost Carriers in the world and how their model started off and how it has evolved over time to accommodate the changing market trends. Various case studies will be looked upon related to different...
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...com/info-resources/selecting-local-exchange-carriers-services/ One of the most important decisions a telecommunications manager needs to make with respect to establishing service for their external customers is who will provide the internal local service and what type of service(s) are required. Local exchange service is still at the heart of most companies’ telecommunications structure. The telephone system has grown up with procedures, interfaces, and is now designed for single ownership. The closed nature of the telephone network brings stability that is difficult to break. Competitors be allowed to connect to the ILEC at any feasible point. In fact, it carves into the heart of a system that was never designed for this kind of openness. The lowest unit in the local exchange is known as a wire center. In larger metropolitan areas, several wire centers combine to make up an exchange. An exchange is a telephone serving area that has uniform rates, services, and tariffs. Exchanges may be combined into an extended area service (EAS) serving area. Local Access Transport Area (LATA) is the area in which the BOC is permitted to complete toll calls until the regulatory restrictions are lifted. The purpose of the local tandem is to allow end offices to route traffic through the tandem if they have insufficient traffic to justify direct trunks or if traffic overflows from direct trunks. Competitive Local Exchange Carriers (CLECs’) networks are overlaid on the...
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...2.4. Characteristics of market development scenarios in the context of the creation of the new air carrier Depending on the market development scenarios in the context of creation of new air carrier proposed hypotheses of the study can be proved or disproved. Thus, below are factors that determine the development of scenario, confirming alternative hypothesis, according to which the creation of new air carrier providing safe, effective, low cost air services to a wide range of consumers will be profitable: Obtaining the required governmental approvals. Securing financing. Experienced management. Marketing; either dealing with channel problems and barriers to entry; or solving problems with major advertising and promotion budgets. Targeted...
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...Asian Low Cost Airlines A Strategic Management Analysis Analysis is made from Strategic Alliances between Batch 20 and Batch 21 of SGU MBA Program Written by YopieRissa Pahlawan Arfianto RiaHutari RonyHariadi If you get your passengers to their destinations when they want to get there, on time, at the lowest possible fares, and make darn sure they have a good time doing it, people will fly your airline. Rollin King and Herb Kelleher, founder of Southwest Airlines in 1971 SECTION 1 – Budget and Low Cost Airlines 1.1. Budget Airlines The original concept of budget airlines is basically outsourced business. It puts together other businesses into and integrates those separate businesses into a form of operation and put effort to create a brand. Basically, it will try to minimize capital investments and cover it with operational expenses. And by nature of its business model, the cost structures are all variable costs, or very minimum fixed costs. With this business model, the company is not only rent the aircraft, but also outsourced its pilots, flight attendants, and other employees. It will sell tickets through agents and use service from company doing aircraft maintenance and services. And to ensure the profitability, it is critical that the operational costs, which is the main source of expenses, to be as low as possible. Therefore, it is typical that companies using this business model to use old airplanes which are close to end of the service-life...
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...The aim of this paper is to discuss how low cost carriers will continue to impact the airline industry in 2012 and beyond. We will look at the history of the budget airline industry and their consumer targets. As well as analyse what marketing strategies they use that have allowed them to grow so much. A low cost carrier is an airline category defined primarily by low fares but also by a focus on reducing operating costs by eliminating complexity and charge for product elements which go beyond the basic product: the flight. The first budget airline company Southwest Airlines was launched in 1971 in Dallas Texas and turned profitable in 1973. According to the e-magazine Airline Business (2012) research, Southwest Airlines is the biggest domestic airline in USA and is the biggest budget airline in the world by revenue. Ryanair is the second largest low cost carrier with its launch in 1990 In the UK followed by EasyJet and Virgin. In 2001 Ryanair and Easyjet started to offer connections between two airports outside their home which was only possible due to a political decision allowing airlines to turn from more governmentally controlled transport providers to private companies on a free market. LCC became popular since the 1990s because of the low-fares and no-frills service. Compared to the full cost carriers (FCC), more people chose to fly with low cost carriers because they can fly domestically and to more countries. Furthermore, LCC tend to have scheduled flights and...
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...Ocean Carriers’ Case Spring 2012 Ocean Carriers Ocean Carriers Inc. owned and operated capsized dry bulk carriers that carried iron ore worldwide. The company’s vessels were typically chartered on a “time charter” basis for a period of years. The charterer paid Oceans Carriers a daily hire rate for the entire length of the contract, determined what cargo the vessel carries, and controlled where the vessel loaded and unloaded. Ocean Carriers supplied a vessel that complied with internal regulations and manned the vessel with a qualified crew. Additionally, Ocean Carriers ensured adequate supplies and stores onboard, supplied lubricating oils, scheduled the repairs, conducted overall maintenance of the vessel, and placed all insurances for the vessel. Need for Analysis In 2001, Ocean Carriers was in a predicament and it was essential that the company conduct detailed analysis before making major decisions. Ocean Carriers was in negotiations with a charterer for a three-year time charter starting in 2003, but the vessels in Ocean Carriers’ current fleet could not commit to a time charter beginning in 2003. The company’s ships were either already leased during that period or were too small to meet the customer’s needs. It is also noteworthy that there were no sufficiently large capsizes available in the second-hand market. Ocean Carriers had to decide how to handle this situation with the charterer and thorough analysis was certainly necessary. General...
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...5. What should we do? A decision has to be made on the possible construction of a new ship to meet the demands of a charterer, which wants a contract of only 3 years. Based on the calculation of the cost of construction against the value of the contract, it is recommended that Ocean carriers should not go ahead with the construction. However, if a strategic alliance can be created with another carrier to lease their vessels, Ocean Carriers should accept the contract. What does Mary Linn has to consider? 1. Evaluation of the amount of expected returns over the life of the present contract. 2. Evaluation of the value of the cash injection into the project. Expected Returns: Considering that the ship was specifically constructed for this contract, the expected return for this case will be made over the contract. Without this contract the cash could have been used for other opportunities instead (opportunity cost). And after this contract there is no guarantee of new contracts at the same value, so this has to be taken as a risk premium. 1. Is it worth the construction of a new vessel? During the first 3 years the vessel needs 8 days a year of maintenance and repairs. Number of days available for lease a year = 365 – 8 = 357 Return over 3 years contract. Note that the contract takes place 2 years from the present. Using the expected rate of inflation of 3% and that does not change over the 3 years. Year 1 = 20,000 x 357 = 7.140,000 PV(1) 3 = 6...
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...Entrepreneur 510 Case 1 Summary Le Xu 102-11-211 The Beach Carrier What is the nature of the product? What are its strengths and weaknesses? Beach Carrier is multifunctional bag in which a consumer can carry lots of things that will be used for a day while spending time on the beach. The bag can also be used to transport difficult-to-carry items, such as ski boots. The strengths of Beach Carrier are its big storage space, better mobility and lower price comparing with two other competitive products in the market. The downsides of this product are its trendy color which is perceived as the image of low quality and unnecessarily larger-than-usual size. What are the limitations to the assumptions Ricci has made in determining the market potential? What risks do these present? The first limitation is that Ricci targeted suntan and sunscreen product consumers as her beach bag’s potential users. Since suntan and sunscreen product can be applied to not only people who go to the beach, Ricci’s assumption of target market could be too broad. Ricci might spend lots of money advertising on the wrong customers. The second limitation is that Ricci assumed that men did not purchase beach bags like women. Ricci should conduct some thorough researches before drawing that conclusion. Ricci might lose a considerable marketing share from male consumers by ignoring their...
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...Case Ocean Carriers Investment calculations If we make calculations assuming that Ocean Carriers is a U.S. firm subject to 35% taxation, net present value for the 39 million dollar investment is approximately -5,55 million dollars. Therefore on the basis of my calculation, the investment appears to be unprofitable. Obviously the conditions are far better if Ocean Carrier resides in Hong Kong and does not pay taxes for its overseas profits. In that scenario the investment has approximately net present value of 2,73 million dollars. A sensitivity analysis reveals that the investment decision will remain profitable even if the future conditions are slightly (but not much) worse than what the firm currently anticipates. If the firm uses 10,1% discount rate (compared to the current 9%), the investment will approximately break even. Relevance of the already occurred expenses The firm should not include the already occurred expenses to its investment calculations. The occurred costs are sunken costs that the firm has to cover whether it decides to make the investment or not. APPENDIX 1. Investment calculation with 35% tax 2. Investment calculation with 0% tax OC is a U.S. firm with 35% tax (1/3) Purchase price 39 000 000 Discount rate 9,00 % Inflation 3,00 % Operating cost increase 4,03 % Tax rate 35,00 % Age of ship 1 2 3 4 5 6 7 Event year 0 1 2 3 4 5 6 7 8 9 Calendar year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Days in year 365 365 365 365 365 365...
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...Michael Depersia Ocean Carriers needs to evaluate the decision to commission a new capesize carrier. Mary Linn, Vice President of Finance, needs to decide if this is a profitable decision for the company. In determining whether Ocean Carriers should purchase the new capesize carrier for the potential customer, we completed a net present value analysis of the project. In order to do this we need to take many things into account including, but not limited to, depreciation, opportunity costs and networking capital. To begin, we calculated the revenue given expected daily hire rate that could be expected over the lifetime of the vessel. We chose to use the expected daily hire rate because it most accurately represents Ocean Carrier’s cash flows. The initial investment was 10% of the purchase price in first year, which amounted to $3,900,000 paid in the beginning and the end of the first year. Beginning in 2003, the operating costs for the vessel were $1,460,000 ($4,000 per day), growing at a rate of 1% per year. For the 15 year analysis, we first subtracted the $5,000,000 salvage value and used straight-line depreciation over 15 years, which was $2,667,667 per year. Depreciation is important for this calculation because it allows the firm to recognize the wear and tear on the vessel by decreasing the worth of the asset. The straight-line depreciation method allows firms to allocate fixed reductions in the asset's value over its useful life. It is calculated by the acquisition cost...
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...Case 1: Ocean Carriers We think that daily spot hire rate will likely decrease next year. There are two reasons. First, there are 63 new vessels scheduled for delivery in 2001 to increase the supply of vessel and only few old vessels need to be retired, while the demand will not increase because imports of iron ore and coal would remain stagnant over next two years. Second, exhibit 5 shows that avg. spot rate of 2000 was higher than the rate of previous years and avg. 3-yr charter rate. In addition, the market will seemingly go up after two years. Therefore, ship owners should hope to sign short-term contract through using lower daily spot hire rate rather than locking low daily high rate for a long period. Average daily rates are influenced by two factors. First, market condition decides the rate. A change in the supply of vessels or a change in the demand of iron ore will make the rate fluctuate. The trade pattern also influences the average daily rate because different countries have unique policies. Second, the condition of vessel would have effect on the rate. The newer and more efficient the ship is, the higher the rate is, and vice versa. Market conditions, which include price and competition, imply that the cash flows are susceptible to changes. In this case, the free cash flow will gradually decline with time. The cost of a new vessel in present value (January 2001) terms is $33,738,397.44(Cost Analysis), compared to a book value of $39 million (Cost Analysis). The...
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...Ocean Carriers According to Exhibit 3, the number of vessels is set to increase from 2001 to 2004. The iron ore shipment imports stay relatively the same amount, so we expect the daily spot rates to decrease over the next few years. The daily hire rates are driven by supply and demand. The historical changes in these rates have been related to the change of the bulk shipments. The supply is equal to the currents vessels plus new ships minus scrapings. Demand for dry bulk capesize is determined by the economy. A strong economy will increase the demand. The long-term prospects of the capesize dry bulk industry are connected to the volume of vessel shipments of iron ore and coal. We expect the long-term prospects to grow. Over 85% of the cargo carried by capsizes was iron ore and coal. The amount in tons of iron ore shipments is expected to grow consistently each year. The cost of a new vessel in present value terms is $33,738,397. Ocean Carriers will pay the $39 million over three installments: 10% immediately, 10% in a year and the rest in two years. The $33,738,397 is roughly 87% of the $39 million price. The installments are a good financing decision for Ocean Carriers since it is less than the $39 million. If the ship is going to be sold for scrap after 15 years, we should calculate the NPV from 2000 to 2017. There are mainly three steps to calculate NPV. First, we work out EBIT, then calculate free cash flow, and finally use the free cash...
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