Use the attached 1-page Excel spreadsheet, which you may revise, as part of your work to fully analyze
and evaluate the following case. Your answer may not exceed 2 pages including the 1-page spreadsheet,
and your name must be on the exam.
Qatar Liquid Gas Carriers (QLGC)
The recent Japanese earthquake and the resulting tsunami that triggered the nuclear explosion at
Fukushima put the future of nuclear energy in many parts of the world in jeopardy. Countries like France
and Germany announced restrictions on future nuclear plans. A clean energy alternative source is natural
gas. Aware of such contingency, and to utilize its large natural gas reserves, the sovereign wealth fund of
Qatar established Qatar Liquid Gas Carriers (QLGC) as a marine company that is specialized in buying
liquid gas tankers, then leasing them to clients. In addition to profit, the goal is to ensure adequate supply
of carriers in a safe and reliable environment.
QLGC developed a strategic alliance with Swedish ShipYard (SSY), a tanker-ship builder in Sweden, and
became a hub for clients to lease on demand. Assured of liquidity and adequate demand by QLGC, SSY
designed an industry-standard model vessel and optimized its operations to deliver almost on demand.
Recently QLGC has been approached by a utility company in Singapore to lease a standard carrier for 5
years at a base daily hire rate of $25,000, adjusted every year at 1% above inflation, which is currently 3%
and is expected to be the same for the foreseeable future. The daily hire rate is payable every day except
when the ship is off service for maintenance and inspection, which is a total of 15 days a year. Working
capital is $1 million adjusted every year at the rate of inflation, and recovered at 80% of its face value.
SSY will deliver the ship on demand at a price of $40 million payable on delivery. Committed to safety and
its long-term relationship with LGC, SSY operates the vessel and provides all maintenance, licensing,
certification and insurance at a cost of $2,000 daily (365 day/year) adjusted yearly at the rate of inflation.
SSY is also committed to buy the ship back at the end of 15 years at $10 million.
QLGC expects to own the ship for 15 years then resell it to SSY. QLGC expects that the 5-year lease with
the Singaporean utility company can be repeated 2 additional times during their ownership of the carrier.
The second 5-year lease starting base daily hire rate is $27,000, and the third 5-year starting the base
daily hire rate is $29,000. Each lease will be adjusted yearly at 1% above inflation.
QLGC is an all-equity enterprise, and its cost of capital is 9%. QLGC has a tax rate of 35%.
Evaluate the project on the basis of NPV, PI, IRR, MIRR, conventional and discounted payback period.
|Due By (Pacific Time)||06/21/2013 12:00 am|
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