Example #1

Bulk carrier to carry full cargo of grain from New Orleans to Rotterdam after ballast voyage from UK. Distance from New
Orleans to Rotterdam is 4797 nm and UK to New Orleans is 4450 nm. Find out the daily income for following data.

SHIP:
COST:
U. K. Port:
30,000 tonnes d.w. and 37,500 cu. m. grain.
Port Dues £20000
Summer draft 10.4 m. New Orleans:
Speed 14.5 knots loaded & 15.5 knots ballast Harbour dues $50000
32 tonnes high viscosity fuel per day plus 1.5 tonnes diesel oil at sea or in port. Miscellaneous $10000
Daily running costs £5000 excluding capital charges. Rotterdam:
Harbour dues $50000
CARGO : Miscellaneous $10000
28,000 tonnes grain. Fuel:
Loading rate 7,000 tonnes per day HVF @ $300/tonne
discharging 4,000 tonnes per day. DO @ $500/tonne
Loading charge $3.00 per tonne and free discharge.
Assume
Freight: $40.00 per tonne. Bunkering time 0.5 day
Brokerage/commission 5 per cent. Waiting for berth 1.5 days
Assume 1£ = $1.30
Example #2:
A package of control equipment for an item of ship's machinery comes in two models: a heavy duty model costing £40,000 which will last
the 16-year life of the ship and a standard model costing £26,000 which lasts 8 years. Which model offers the lower cost over the ship's
life, if maintenance and operating costs are the same for both models? How much is the maximum allowable replacement cost of the
standard model? Assume 12% opportunity cost of capital.
Example #3:
In order to encourage initial sales, the manufacturer of a novel type of deck crane offers a 'buy now, pay later' deal. The equipment would
cost £120,000 if purchased now, but the manufacturer is willing to accept instead a lump sum of £130,000 paid in three years' time.
What rate of interest is implied? Does it look a good deal financially?
Example #4:
In a new diesel propelled bulk carrier, fitting of an exhaust-gas waste-heat generating plant to provide electrical power at sea is estimated to
cost £££300,000 more than the equivalent system using only diesel alternators. The equipment reduces auxiliary fuel consumption by 1.0
tonne per day at sea, with fuel assumed to cost ££200 per tonne.
If the ship operator expects the ship to spend 230 days at sea a year, and is looking for a rate of return over the 16-year life of the ship of at
least 11% on the extra capital, does the equipment look a good investment?
As a first approximation, it may be assumed that differences in maintenance costs, weight and space are negligible.
Example #5:
A flag-of-convenience ship owner buys a 200,000 tonne d.w. bulkcarrier for £30M cash (i.e. no loans or taxes). He is offered a 15-year time
charter by a steel company. What will be the minimum hire per tonne deadweight per month that he would accept to obtain at least 10
per cent rate of return?
Assume that annual running cost 2M and 11.5 months trading per annum.
Example #6
a) A flag-of-convenience shipowner buys a 200,000 tonne d.w. bulkcarrier for £29M cash (i.e. no loans or
taxes). He is offered a 15-year time charter by a steel company. Assume 11.5 months trading per
annum. Annual running cost 2M.
What will be the rate of return if freight rate is £2.50 per tonne deadweight per month?

b) A flag-of-convenience shipowner buys a 200,000 tonne d.w. bulkcarrier. He is offered a 15-year time
charter by a steel company. Assume 11.5 months trading per annum. Freight rate is £2.50 per tonne
deadweight per month? Annual running cost 2M. What will be the maximum price payable for the ship
to obtain at least 10 per cent rate of return?

Example #7:
Consider a 40,000-tonne deadweight oil products carrier bought by a flag-of-convenience ship owner, for a
total of £18M cash. It is operated on a five-year time charter at £9 per tonne deadweight per month
after commissions, and then sold for £13M cash. Assume that crew costs are £700, 000 in the first
year, rising by 10% per annum and other operating costs are fixed at £ 600,000 per annum. Calculate
NPV at 10% discount rate to assess whether the investment is profitable. Assume 11.5 months trading
per annum.
Example #8:
Consider a 40,000-tonne deadweight oil products carrier bought by a flag-of-convenience ship owner, for a total of
£30M cash. It is operated on a five-year time charter at £ 1.00 per tonne deadweight per day after commissions,
and then sold for £10M cash. Assume that crew costs are £1.5M in the first year, rising by 10% per annum and
other operating costs are £1.4M in the first year, rising by 8% per annum. Calculate NPV at 10% discount rate to
assess whether the investment is profitable. Assume 340 days trading per annum.

Example #9:
A large anchor-handling/tug/supply vessel costing £6M cash on delivery is to be built for charter. The owner
anticipates a time charter hire rate averaging £ 5000 per day. Annual operating costs are expected to be £
855,000. Annual on-hire days 340. Vessel life 15 years, zero residual value. Calculate NPV at 8% discount rate
with corporation tax at 35% under six different tax regimes.
Case 1: No Tax
Case 2: Straight Line Depreciation
Case 3: Declining Balance at 25% (Single Ship or New Entry)
Case 4: Declining Balance at 25% (Other Profit Available)
Case 5: Free Depreciation (Single Ship or New Entry)
Case 6: Free Depreciation (Full Depreciation in First Year)
 Example #10 [Alternative Ship Designs]
Approximately 1.25 M tonnes of mineral ore per annum require to be transported between mine and smelter 2,000 miles apart. Compare the economic performance of a self-unloading
bulk carrier of about 60,000 tonnes dead weight with a conventional ship using existing shore discharging plant. Port limitations restrict the ship to 225m overall length and 13m draft.
Available machinery fixes ship speed at about 15 knots. Flag-of-convenience ship owner requires 10 percent rate of return over 15 year life of ship.
Both Alternatives:
• Breadth restricted to 32.2m for possible Panama Canal transits.
• Adequate cubic capacity exists for the cargo stowage factor.
• Dimensions 210m LBP X 32.2m B X 17.7m D X 13m d, Cb = 0.8 and same hull form.
• Lightship weight 13,200 tonnes.
• Fuel consumption: 40 tonnes heavy fuel plus 1.2 tonnes diesel oil per day.
• Time at loading port 1.5 days.
• Two 8-hours shifts per day worked at discharging port plus one day manoeuvring and miscellaneous time per call.
• Basic ship price Tk. 2B.
• Port Charges: Tk. 2.2M per Round Trip.
• Crew Cost Tk. 66M per annum & other running costs Tk. 88M per annum.
• Off hire days 15
Shore Discharging Gear:
• 1,000 tonnes per hour, at a cost of Tk. 100 per tonne.
Self-Unloading Gear:
• 2,000 tonnes per hour.
• Weight of gear plus structure 2,300 tonnes.
• Additional maintenance cost Tk. 10M and Engineering cost Tk. 5.5M
• Additional diesel oil consumption during discharge 5 tonnes per working day.
• Self-Unloading Gear set up cost Tk. 800M
• Additional three days out of service per annum.
Assume:
• Heavy Fuel price Tk. 40,000 per tonne & Diesel oil price Tk. 50,000 per tonne.
• Other non cargo dead weight 400 tonne
Example #11:
An offshore support vessel costing £18 M cash on delivery is to be built for charter at a rate averaging £15000 per day. It is operated on a ten-
year time charter, and then sold for £ 8 M cash. Assume that crew costs are £700,000 in the first year, rising by 10% per annum and other
operating costs are £600,000 in the first year, rising by 5% per annum. Annual off hire days is 25. Calculate NPV at 10% discount rate with
corporation tax at 35% under the taxation system, declining balance at 25% (single ship or New Entry) should you go for building the
vessel?
Example #12 [Complex Cash Flow]: The ship of a 100,000 cubic meter liquefied gas carrier operating in a consortium with a 12-year time
charter. The ship price is $100M with a 80% loan for eight years at 7% interest. The ship owner wishes to calculate if the proposed charter
will be profitable, in providing a rate of return after tax of at least 12% in money terms. He has to make his own assumptions as to
escalation of operating costs, and expected 35M second hand value at the end of the charter. The tax situation illustrated is U.K. new entry
with 25% declining balance. Assume the following information:
Building Account
Year 0 is contract signing, end year 3 ship is delivered. Building installments are 5% on contract signing, then 10%, 10%, 15%, 20%, 20% and
20% in 6 months, 1 year, 1.5 year, 2 years, 2.5 years and 3 years respectively. Owner pays his 20% capital in 4 equal segment from year 0
to year 3. Loan drawdown is $10M, $5M, $15M, $15M, $20M and $15M in 6 months, 1 year, 1.5 year, 2 years, 2.5 years and 3 years
respectively. Owner pays his technical staff, supervision, fees for arranging loan $0.5M, $0.5M, $0.5M, $0.5M and $1M in year 0, year 0.5,
year 1, year 2,year 3 respectively. This costs extra $ 3M for owner. Owner pays repayments of loan in 8 equal segment from year 4 to year
11.
Operating Account
Twelve year time charter from Years 4 to 15 and ship sold
second hand there after. Time charter rate of $2.2M per 30-day month, after commissions. Assumed 11.33 months on-hire per annum,
with one extra month off-hire in Year 8 for special survey and two extra months in Year 13. Estimated second hand value after twelve
years' service 30% of shipyard price ($30M). Annual crew costs currently estimated at $1.2M. Annual maintenance, repair and stores costs
currently estimated at $1.1M, but assumed to escalate at 8% per annum from year 0. Annual insurance, administration etc. costs currently
estimated at $1.4M but assumed to escalate at 5% per annum from year 0. Interest from Building Account and for Year 4 includes interest
from Years 1 to 3. Assume 35% tax of profit.