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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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