Reference no: EM13381891

1. Should Ocean Carriers purchase the carrier? Answer this first for a tax rate of 35%, then for a tax rate of 0%. Assume that if Ocean Carriers goes ahead and purchases the carrier, it will operate the carrier until it is 25 years old and then scrap it.

• Hint: I decided to be nice. Go to the course Blackboard page and download my "How to Get Started" Excel spreadsheet. I set up some rows and columns for you, but you will have to fill in the numbers. You may of course, include additional columns and ignore some of my columns if you wish.

2. The case states that Ocean Carriers plans to scrap or sell the carrier when it is 15 years old. Work out what is preferable for Ocean Carriers, selling the carrier when it is 15 years old,or scrapping it at that age. In this question, assume a tax rate of 0% for all parties involved.

a. What price can the carrier be sold for when it is 15 years old (assume the buyer will have to pay for the Special Survey for 2017)? Assume that the buyer will operate the carrier until it is 25 years old, and then scrap it. Compare the sale price to the scrap value at this time (i.e. when the carrier is 15 years old) and conclude whether selling or scrapping thecarrier when it is 15 years old is preferable for Ocean Carriers.

b. What is the NPV (as of time 0) of all cash flows to Ocean Carriers if it decides to sell the carrier when it is 15 years old? How does it compare to the NPV you calculated in Question 1?

Attachment:- Financecase.docx