Shipping financial rest SFM-AA-I-RECAP.pptx

Test

1. Shipping financial management Time value of money RECAP Andreas Andrikopoulos, March 2023

2. Example 1 Estimating risk and expected return I Two investment projects, A and B, three probable scenarios on project returns .

3. Example 1 Estimating risk and expected return I Ι Project A Expected return: Variance: =0.0049 Standard deviation (volatility): Coefficient of variation:  

4. Example 1 Estimating risk and expected return II Project B Expected return: Variance: Standard deviation: Coefficient of variation:  

5. Example 2 Estimating profit/loss of shipping investment I You purchased a second-hand handysize vessel $24 mln 18 months ago and now you sell it for $27mln. If a) the vessel did not earn any income throughout this period and b) you had the alternative option to deposit $24 mln at 2% with semi-annual compounding, what was the profit of the investment?

6. Example 2 Estimating profit/loss of shipping investment II Periodic rate: Foregone investment outcome: Profit:  

7. Example 3 Vessel acquisition in installments I You want to buy a second-hand vessel that costs $5.1 mln . You can either pay in three equal, quarterly installments of $.17mln, the first installment being due immediately , OR pay immediately and get 2% discount. If money is deposited in a bank account with 2.4% annual rate and quarterly compounding, should you take the 2% discount?

8. Example 3 Vessel acquisition in installments II Immediate payment: Periodic rate: Installments: . We should take the discount.  

9. Example 4 Estimating profit/loss of shipping investment Ι You purchased a second-hand handysize vessel $24 mln 18 months ago and now you sell it for $18mln. If a) the vessel earned 0.22 mln at the end of each month and b) you had the alternative option to deposit $24 mln at 3.6% with monthly compounding, what was the loss of the investment?

10. Example 4 Estimating profit/loss of shipping investment ΙΙ Periodic rate is: The $24mln deposit would have yielded Shipping investment yielded Loss is  

11. Example 5 Pension Plan Ι You plan to work for the next 35 years and then receive a pension of $400 at the end of each month for the subsequent 20 years. If money is compounded monthly at 6% annual rate, what should be the contribution to the pension plan at the end of each month of your working life?

12. Example 5 Pension Plan ΙΙ Periodic rate: . Final value of contributions must equal present value of pensions. If monthly contribution is C, then , or  

13. Example 6 Perpetuity I A graduate of the MSc Shipping Management wants to set up a scholarship fund, granting $7000 to the valedictorian of each class of the MSc. If money is deposited in a bank account that yields 1% on an annual basis, what should be the scholarship’s endowment?

14. Example 6 Perpetuity II The endowment should be equal to the present value of the scholarships, perpetually:  

15. Example 7 loan amortization schedule I You borrow $7,000,000 to acquire a second-hand vessel. You will repay the debt in three equal, quarterly installments, each at the end of the quarter. If the interest on the loan in 10% and compounding is quarterly, which part of each installment corresponds to interest and repayment of capital?

16. Example 7 loan amortization schedule II The present value of installments equals loan amount Installment I satisfies .  

17. Example 8 Investment appraisal I Which of projects A or B should be accepted, if discount rate equals 8%?

18. Example 8 Investment appraisal II

19. Example 8 Investment appraisal III Present value of cash flows Project A: Project B:  

20. Example 8 Investment appraisal IV

21. Example 8 Investment appraisal V Net present value of Project A: Net present value of Project B: Internal Rate of Return of Project A: 14.59% Internal Rate of Return of Project B: 13.98% Project A profitability ratio: Project B profitability ratio:  

22. Example 9 Profitability ratio I Which of projects A or C should be accepted, if discount rate equals 8%?

23. Example 9 Profitability ratio II Project C is 10 times larger than project A, in terms of cash flow scale. Therefore, PV of all Project C cash flows is ten times greater than Project A cash flows. Project C NPV is ten times greater than Project A NPV Profitability ratios are equal

24. Example 10 Shipping investment example I You buy a capsize bulk carrier for $63mln. You expect annual revenue to be $7.5mln and annual cost to be $1.3mln. The investment’s life span is expected to be 25 years, at the end of which the vessel is expected to be sold for scrap $5mln. Assess the investment based on 8% discount rate.

25. Example 10 Shipping investment example II Net present value is Payback: 11.16 yrs , Discounted payback: 21.78 yrs , Internal rate of return: 8.71%, profitability ratio is .