Finance 2001

Q1. Do you expect daily spot rate to increase or decrease next year (2002)?

Daily spot rate will increase as daily hire rate expected grow.

Q2. What factors drive average daily hire rates?

World economy

Demand in iron ore shipments

Change in trade patterns

Q3. How would you characterize the long-term prospects of the capesize dry bulk industry?

It is stable in that globalization boosts the world's economy which will increase demands for production/shipment of raw materials.

However, technological advancement (ability to build cheaper and bigger ships) will keep the profitability of the industry in the long term.

Q4. Should Ms Linn purchase the $39M capesize?

No with the assumption 1: Tax applied. Negative NPV of $6M (see cell C46)

Yes with the assumption 2: No tax applied. Positive NPV of $4.6M (see cell C47)

Q5. What do you think of the company's policy of not operating ships over 15 years.

It is a good policy since survey costs will overweight the positive cash flows from operation as they continue to operate the old ship after 15 years.

Disc. rate 9%

Capsize costs 39000000

Capsize capacity 180000

Tax rate 35%

Inflation rate 3%

1% above inflation rate 4%

Contract Period 3 years

Operation cost 4000

Daily hire rate under 5-yr 1.15

Daily hire rate 5-9 yr 1.05

Daily hire rate 10-14 yr 1.00

Daily hire arete 15-19 yr 0.08

Premium 15%

Calendar Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Investment Year 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

Age of ship 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Expected Daily Hire Rate 20,000 20,200 20,400 18,714 17,283 17,481 17,682 17,886 18,092 17,428 17,628 17,831 18,036 18,243 14,762 14,932 15,104 15,278 15,454 14,654 14,823 14,993 15,166 15,341 13,448 16,834

Operational days 357 357 357 357 357 353 353 353 353 353 349 349 349 349 349

Investments

Ship (3,900,000) (3,900,000) (46,800,000) 5,000,000 (49,600,000)

NWC (500,000) 500,000 0

Survey 2007 300,000 300,000

Survey 2012 750,000 750,000

Total (3,900,000) (3,900,000) (47,300,000) 0 0 0 300,000 0 0 0 0 750,000 0 0 0 0 5,500,000

Operations

Revenue 7,140,000 7,211,400 7,282,800 7,683,033 7,095,536 7,096,412 7,178,008 7,260,822 7,344,447 7,074,897 7,074,998 7,156,472 7,238,749 7,321,828 5,924,729 107,084,129

Operation costs (1,460,000) (1,474,600) (1,489,346) (1,504,239) (1,519,282) (1,534,475) (1,549,819) (1,565,318) (1,580,971) (1,596,780) (1,612,748) (1,628,876) (1,645,165) (1,661,616) (1,678,232) (23,501,467)

0

Depreciations-ship (1,560,000) (1,560,000) (1,560,000) (1,560,000) (1,560,000) (1,560,000) (1,560,000) (1,560,000) (1,560,000) (1,560,000) (1,560,000) (1,560,000) (1,560,000) (1,560,000) (17,160,000) (39,000,000)

Depreciations-survey 2007 (60,000) (60,000) (60,000) (60,000) (60,000) (300,000)

Depreciations-survey 2012 (150,000) (150,000) (150,000) (150,000) (150,000) (750,000)

Operation Income 4,120,000 4,176,800 4,233,454 4,618,793 3,956,254 3,941,937 4,008,188 4,075,504 4,143,477 3,768,116 3,752,249 3,817,596 3,883,584 3,950,212 (12,913,504) 0 0 0 0 0 0 0 0 0 0 43,532,661

Tax (1,442,000) (1,461,880) (1,481,709) (1,616,578) (1,384,689) (1,379,678) (1,402,866) (1,426,426) (1,450,217) (1,318,841) (1,313,287) (1,336,159) (1,359,254) (1,382,574) 4,519,726 0 0 0 0 0 0 0 0 0 0 (15,236,431)

Net Income 2,678,000 2,714,920 2,751,745 3,002,216 2,571,565 2,562,259 2,605,323 2,649,078 2,693,260 2,449,275 2,438,962 2,481,437 2,524,330 2,567,638 (8,393,777) 0 0 0 0 0 0 0 0 0 0 28,296,230

Net Income w/o tax 4,120,000 4,176,800 4,233,454 4,618,793 3,956,254 3,941,937 4,008,188 4,075,504 4,143,477 3,768,116 3,752,249 3,817,596 3,883,584 3,950,212 (12,913,504) 0 0 0 0 0 0 0 0 0 0 43,532,661