(a) Statement of Problem.

Ocean Carriers is evaluating a proposed three year lease of a ship. Currently, no ships in Ocean Carrier's fleet meet the requirements of the customer. Since the new ship requires an investment of $39 million, Mary Linn, the Vice President of Finance for Ocean Carriers, needs to evaluate the proposal's NPV and determine whether or not to accept the proposal by considering expected cash flows, tax implications, and future market conditions.

(b) Statement of Facts and Assumptions.

In our analysis, we assumed that the ship was sold after 15 and 25 years, with and without tax. In both sets of calculations, the ship had a salvage value of $5 million for the sale of the steel to the demolition yard. The 25 year analysis included the final survey cost of $1.25 million in the 25th year, resulting in one year of depreciation. Expected daily hire rates from exhibit 6 were used to calculate annual income.

(c) Analysis.

Average......

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Title: Ocean Carriers
Approximate Word Count: 634
Approximate Pages: 3 (250 words per double-spaced page)

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