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# Economy Shipping Essay

1234 words - 5 pages

Economy Shipping Company (Abridged)

Question 1. What are the relevant cash flows under each of the two alternatives? And in what years do they occur?

Alternative 1: Rehabilitation of the Conway

We decided to divide this alternative in two parts. Part A is Rehabilitation without parts and Part B is Rehabilitation with parts.

Facts/Assumptions

• Conway’s additional useful life of 20 years.
• Book value of Conway: \$39,500
• Market value of Conway: \$25,000. This is the Opportunity Cost of not selling the Conway at year 0.
• Rehabilitation costs: \$115,000. If spare parts are used, rehabilitation costs would be \$71,500.
• Book value of spare parts if used on ...view middle of the document...

00 |\$948.00 |\$861.82 |
|2 |5 |\$1,975.00 |\$948.00 |\$783.47 |
|3 |5 |\$1,975.00 |\$948.00 |\$712.25 |
|4 |5 |\$1,975.00 |\$948.00 |\$647.50 |
|5 |5 |\$1,975.00 |\$948.00 |\$588.63 |
|6 |5 |\$1,975.00 |\$948.00 |\$535.12 |
|7 |5 |\$1,975.00 |\$948.00 |\$486.47 |
|8 |5 |\$1,975.00 |\$948.00 |\$442.25 |
|9 |5 |\$1,975.00 |\$948.00 |\$402.04 |
|10 |5 |\$1,975.00 |\$948.00 |\$365.50 |
|11 |5 |\$1,975.00 |\$948.00 |\$332.27 |
|12 |5 |\$1,975.00 |\$948.00 |\$302.06 |
|13 |5 |\$1,975.00 |\$948.00 |\$274.60 |
|14 |5 |\$1,975.00 |\$948.00 |\$249.64 |
|15 |5 |\$1,975.00 |\$948.00 |\$226.94 |
|16 |5 |\$1,975.00 |\$948.00 |\$206.31 |
|17 |5 |\$1,975.00 |\$948.00 |\$187.56 |
|18 |5 |\$1,975.00 |\$948.00 |\$170.51 |
|19 |5 |\$1,975.00 |\$948.00 |\$155.01 |
|20 |5 |\$1,975.00 |\$948.00 |\$140.91 |

|REHAB COSTS |  |\$115,000 |  |  |
|YEAR |DEPRECIATION % |WRITE OFF AMNT |TAX SHIELD |PV OF TAX SHIELD|
|  |  |  |  |  |
|1 |5 |\$5,750.00 |\$2,760.00 |\$2,509.09 |
|2 |5 |\$5,750.00 |\$2,760.00 |\$2,280.99 |
|3 |5 |\$5,750.00 |\$2,760.00 |\$2,073.63 |
|4 |5 |\$5,750.00 |\$2,760.00 |\$1,885.12 |
|5 |5 |\$5,750.00 |\$2,760.00 |\$1,713.74 |
|6 |5 |\$5,750.00 |\$2,760.00 |\$1,557.95 |
|7 |5 |\$5,750.00 |\$2,760.00 |\$1,416.32 |
|8 |5 |\$5,750.00 |\$2,760.00 |\$1,287.56 |
|9 |5 |\$5,750.00 |\$2,760.00 |\$1,170.51 |
|10 |5 |\$5,750.00 |\$2,760.00 |\$1,064.10 |
|11 ...

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