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Problem:

In January 2001, Mary Linn, VP of finance for Ocean Carriers, a shipping company with offices in New York and Hong Kong, must evaluate a proposed lease of a ship for a three-year period, beginning in early 2003. No ship in Ocean Carrier's current fleet meets the customer's requirements. Linn has to decide whether it will be profitable for Ocean Carriers to immediately commission a new capsize carrier that will take two years to complete and enter into the proposed lease.

Assumptions:

Operating costs for a new ship are $4,000 per day and will increase annually at a rate of 1% above inflation. Eight days out of each year of the contract will be allotted for repairs and maintenance- these days will not be charged to the customer. The new ship will be depreciated on a straight-line basis over 25 years. The average prevailing daily spot market rate is $22,000 per day. Ocean Carriers uses a 9% discount rate.

Analysis:

When looking at the forecasting done......

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Approximate Word Count: 473
Approximate Pages: 2 (250 words per double-spaced page)

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