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 materi
However, technological advancement (ability to build cheaper and bigger ships) will keep the profitability of the industry in the lo
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 s
Disc. rate
Capsize costs
Capsize capacity
Tax rate
Inflation rate
1% above inflation rate
Contract Period
Operation cost
Daily hire rate under 5-yr
Daily hire rate 5-9 yr
Daily hire rate 10-14 yr
Daily hire arete 15-19 yr
Premium

9%
39000000
180000
35%
3%
4%
3 years
4000
1.15
1.05
1.00
0.08
15%
Calendar Year
Investment Year
Age of ship
Expected Daily Hire Rate
Operational days

2001
0

2002
1

(3,900,000)

(3,900,000)

(3,900,000)

(3,900,000)

Investments
Ship
NWC
Survey 2007
Survey 2012
Total
Operations
Revenue
Operation costs
Depreciations-ship
Depreciations-survey 2007
Depreciations-survey 2012

Operation Income
Tax
Net Income
Net Income w/o tax
Add back (non-cash transaction)
Depreciations-ship
Depreciations-survey 2007
Depreciations-survey 2012
Total Add back
Cash flows w/Tax
Cash flows w/o Tax
NPV w/Tax 6% disc. Rate
NPV w/o Tax 6% disc. Rate

(3,900,000)
(3,900,000)
(6,069,545)
4,623,672

(3,900,000)
(3,900,000)

s for production/shipment of raw materials.

p the profitability of the industry in the long term.

ion as they continue to operate the old ship after 15 years.

2003
2
1
20,000
357

2004
3
2
20,200
357

2005
4
3
20,400
357

2006
5
4
18,714
357

2007
6
5
17,283
357

2008
7
6
17,481
353

2009
8
7
17,682
353

2010
9
8
17,886
353

(46,800,000)
(500,000)
300,000
(47,300,000)

300,000

7,140,000
(1,460,000)

7,211,400
(1,474,600)

7,282,800
(1,489,346)

7,683,033
(1,504,239)

7,095,536
(1,519,282)

7,096,412
(1,534,475)

7,178,008
(1,549,819)

7,260,822
(1,565,318)

(1,560,000)

(1,560,000)

(1,560,000)

(1,560,000)

(1,560,000)
(60,000)

(1,560,000)
(60,000)

(1,560,000)
(60,000)

(1,560,000)
(60,000)

4,120,000
(1,442,000)
2,678,000
4,120,000

4,176,800
(1,461,880)
2,714,920
4,176,800

4,233,454
(1,481,709)
2,751,745
4,233,454

4,618,793
(1,616,578)
3,002,216
4,618,793

3,956,254
(1,384,689)
2,571,565
3,956,254

3,941,937
(1,379,678)
2,562,259
3,941,937

4,008,188
(1,402,866)
2,605,323
4,008,188

4,075,504
(1,426,426)
2,649,078
4,075,504

1,560,000

1,560,000

1,560,000

1,560,000

1,560,000
60,000

1,560,000
60,000

1,560,000
60,000

1,560,000
60,000

1,560,000

1,560,000

1,560,000

1,560,000

1,620,000

1,620,000

1,620,000

1,620,000

(43,062,000)
(41,620,000)

4,274,920
5,736,800

4,311,745
5,793,454

4,562,216
6,178,793

4,491,565
5,876,254

4,182,259
5,561,937

4,225,323
5,628,188

4,269,078
5,695,504

2011
10
9
18,092
353

2012
11
10
17,428
353

2013
12
11
17,628
349

2014
13
12
17,831
349

2015
14
13
18,036
349

2016
15
14
18,243
349

2017
16
15
14,762
349

5,000,000
500,000

750,000
750,000

5,500,000

7,344,447
(1,580,971)

7,074,897
(1,596,780)

7,074,998
(1,612,748)

7,156,472
(1,628,876)

7,238,749
(1,645,165)

7,321,828
(1,661,616)

5,924,729
(1,678,232)

(1,560,000)
(60,000)

(1,560,000)

(1,560,000)

(1,560,000)

(1,560,000)

(1,560,000)

(17,160,000)

(150,000)

(150,000)

(150,000)

(150,000)

(150,000)

2018
17
16
14,932

4,143,477
(1,450,217)
2,693,260
4,143,477

3,768,116
(1,318,841)
2,449,275
3,768,116

3,752,249
(1,313,287)
2,438,962
3,752,249

3,817,596
(1,336,159)
2,481,437
3,817,596

3,883,584
(1,359,254)
2,524,330
3,883,584

3,950,212
(1,382,574)
2,567,638
3,950,212

(12,913,504)
4,519,726
(8,393,777)
(12,913,504)

0
0
0
0

1,560,000
60,000

1,560,000

1,560,000

1,560,000

1,560,000

1,560,000

17,160,000

1,620,000

150,000
1,710,000

150,000
1,710,000

150,000
1,710,000

150,000
1,710,000

150,000
1,710,000

17,160,000

4,313,260
5,763,477

4,909,275
6,228,116

4,148,962
5,462,249

4,191,437
5,527,596

4,234,330
5,593,584

4,277,638
5,660,212

14,266,223
9,746,496

2019
18
17
15,104

2020
19
18
15,278

2021
20
19
15,454

2022
21
20
14,654

2023
22
21
14,823

2024
23
22
14,993

2025
24
23
15,166

2026
25
24
15,341

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

2027
26
25
13,448

16,834

(49,600,000)
0
300,000
750,000

107,084,129
(23,501,467)
0
(39,000,000)
(300,000)
(750,000)

0
0
0
0
0

0
0

43,532,661
(15,236,431)
28,296,230
43,532,661
0
39,000,000
300,000
750,000
40,050,000

Exhibit 1

Capital Expenditures Anticipated in Preparation for Special Surveys

2007

2012

2017

2022

2027

300,000

350,000

750,000

850,000 1,250,000

Exhibit 3

Current order book for dry bulk capesizes by delivery date

2001

Number of vessels

2002
63

2003
33

2004
21

Exhibit 4

Daily Hire Rate Adjustment Factor for Dry Bulk Capesizes Based on Age of Vessel

Over 24 years 20 to 24 years 15 to 19 years 10 to 14 years

0.65

0.75

0.8

5 to 9 years Under 5 years

1.05

1.15

Exhibit 5

Worldwide Iron Ore Vessel Shipments, Fleet Size and Average Daily Hire Rates for Capesize Charters, 1994-2001
1994

1995

1996

1997

Iron ore vessel shipments

Current Order Book

375

397

385

424

Fleet size

NA

NA

NA

540

Avg. spot rate

$16,851

2.23%

$20,149

1.97%

$11,730

3.28%

$14,794

2.87%

Avg. 3-yr charter rate

$18,250

2.05%

$18,544

2.14%

$14,079

2.73%

$16,063

2.64%

Capesize Charters, 1994-2001

1998

1999

2000

2001E

2002E

420

410

440

436
63

33

523

523

552

612

$10,105

4.16%

$9,427

4.35%

$22,575

1.95%

$13,076

3.21%

$12,626

3.25%

$15,344

2.87%

2003E

2004E

21

Exhibit 6

Forecasted Daily Time Charter Rates for New Capesize Vessel

Iron Ore
Shipments
Event Year Calendar Year (Millions of Tons)

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

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
27

2000
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

440
436
445
454
463
472
479
486
493
501
508
516
524
532
540
548
556
564
573
581
590
599
608
617
626
636
645
655

Avg Daily Charter

Rate

% Growth
7.30%
-0.90%
2.00%
2.00%
2.00%
2.00%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%

Age of Ship

Event Year

Calendar Year
Iron Ore
Shipments
(Millions of Tons)
Avg Daily Charter
Rate

15,344
14,747
15,072
15,403
15,742
16,088
16,273
16,460
16,650
16,841
17,035
17,231
17,429
17,629
17,832
18,037
18,245
18,454
18,667
18,881
19,098
19,318
19,540
19,765
19,992
20,222
20,455
20,690

2000

2001

2002

2003

440

436

445

454

15,344

14,747

15,072

15,403

Adjustment Factor
for Hire Rate

1.15

Adjusted Daily
Hire Rate

17,713

Expected Daily
Hire Rate

20,000

Adjustment
Factor for
Hire Rate

% Growth
21.50%
-3.90%
2.20%
2.20%
2.20%
2.20%
1.20%
1.20%
1.20%
1.20%
1.20%
1.20%
1.20%
1.20%
1.20%
1.20%
1.20%
1.20%
1.20%
1.20%
1.20%
1.20%
1.20%
1.20%
1.20%
1.20%
1.20%
1.20%

Adjusted
Daily Hire
Rate

1.15
1.15
1.15
1.15
1.05
1.05
1.05
1.05
1.05
1.00
1.00
1.00
1.00
1.00
0.80
0.80
0.80
0.80
0.80
0.75
0.75
0.75
0.75
0.75
0.65

Expected
Daily Hire
Rate

17,713
18,103
18,501
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

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

10

11

2004

2005

2006

2007

2008

2009

2010

2011

463

472

479

486

493

501

508

516

15,742

16,088

16,273

16,460

16,650

16,841

17,035

17,231

1.15

1.15

1.15

1.05

1.05

1.05

1.05

1.05

18,103

18,501

18,714

17,283

17,481

17,682

17,886

18,092

20,200

20,400

18,714

17,283

17,481

17,682

17,886

18,092

10

11

12

13

14

15

16

17

18

12

13

14

15

16

17

18

19

20

2012

2013

2014

2015

2016

2017

2018

2019

2020

524

532

540

548

556

564

573

581

590

17,429

17,629

17,832

18,037

18,245

18,454

18,667

18,881

19,098

1.00

1.00

1.00

1.00

1.00

0.80

0.80

0.80

0.80

17,428

17,628

17,831

18,036

18,243

14,762

14,932

15,104

15,278

17,428

17,628

17,831

18,036

18,243

14,762

14,932

15,104

15,278

19

20

21

22

23

24

25

21

22

23

24

25

26

27

2021

2022

2023

2024

2025

2026

2027

599

608

617

626

636

645

655

19,318

19,540

19,765

19,992

20,222

20,455

20,690

0.80

0.75

0.75

0.75

0.75

0.75

0.65

15,454

14,654

14,823

14,993

15,166

15,341

13,448

15,454

14,654

14,823

14,993

15,166

15,341

13,448