723 Valuation Case (Fall 2025)

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723 Valuation Case (Fall 2025)

If you have not already done so, please pay for and download the Ocean Carriers case and accompanying spreadsheet of the case exhibits (i.e., the cash flows) at following link:

https://hbsp.harvard.edu/import/1313662

The excel spreadsheet of the case exhibits comes free with the case but I cannot post it directly here because of copyright issues, so make sure you get it when you buy the case. You only need the spreadsheet which comes with the case – which contains the exhibits from the case which you’ll need to compute the free cash flows for Ocean Carriers.

Please answer the following questions with your team. Please submit only one answer per team, in the form of an excel spreadsheet where you show your work and with answers to questions clearly marked. The submission should contain the names of all team members. You may submit an additional Word document with answers that refer to your Excel work.

Questions:

1. Using the data in the spreadsheet downloaded from HBSP with the case, set out the free cash flows for the decision to purchase the new capesize for $39m.

Make two different assumptions:

(i) First assume that Ocean Carriers is a US firm subject to 35% taxation.

(ii) Now assume instead that Ocean Carriers is domiciled 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 made on cargo uplifted from Hong Kong.

2. For each tax assumption, should Ocean Carriers purchase the new capsize if they plan to scrap the ship after 15 years? Explain.

3. What do you think of the company’s policy of not operating ships over 15 years old? (Hint: should the ship be scrapped at 15 years? How much could it be sold for otherwise?)

Please use a cost of capital of 9% throughout.