2. Using information in Exhibit 6, calculate the cash flows from the ship operations over the useful life of the ship.

3. Should Ms Linn purchase the $39M vessel? Analyze the situation under different sets of assumptions (tax, vessel scrapping in year 15 or 25, securing contract or not).

a. First, assume that Ocean Carriers is a U.S. firm subject to 35% taxation.

b. Second, assume that Ocean Carriers is located in Hong Kong, where the owners of Hong Kong ships are not required to pay any tax on profits made overseas and are also exempt from paying any tax on profit made on cargo uplifted from Hong Kong.

c. Should the company scrap its vessels after 15 years or after 25 years? Why? What should be the fair resale value of the ship at the end of 15 years?

d. What is the NPV of buying a vessel if the Ocean Carriers does not secure a contract with a charterer?