Economy Shipping Company :: Business Management Finances Essays

Economy Shipping Comp anyIt is recommended that Economy Shipping Company (ESC) replace thesteamboat, Cynthia, with a new diesel powered boat. The analysis fictitious no operating cost in 1950. Although ESC waspresumably still in service during this analysis, the costs associatedwith the project evaluation were not accounted for until 1951. It wasalso implicit in the NPV calculations that any upgrade requiredsubsequent to 1950 could be performed without any interruption to thedaily operations and were performed at the beginning of the year. Therefore, the fire fighter upgrade and the engine replacements wereconsidered on Jan 1st of the intended year and did not require anydowntime for the installation. The evaluation considered four different scenarios1. Rehabilitation of Cynthia with the stoker conversion occurring in 19502. Rehabilitation of Cynthia with the stoker conversion occurring in 1952 3. Purchase of a new diesel-powered boat with 2 shifts, 12-hour working day4. Pur chase of a new diesel-powered boat with 3 shifts, 8-hour working daySince ESC was considering other projects with a rate of return of 10%,each of the above options were considered using the same rate ofreturn. The company?s balance sheet of paper suggests that management was veryconservative. The debt-to-equity ratio in 1950 was 0.075, indicatingthat the company could easily borrow at the going rate of 3% withoutfear of bankruptcy. Moreover, the company had sufficient gold topurchase four new diesel-powered boats. Overall, ECS was in a verystrong position to quickly upgrade their fleet and gain any advantagethat may come with the new diesel-powered boats. The influence of the union to change the working hours for the crewmembers is noteworthy in this analysis. If the union succeeded, thesteamboats would not be capable of accommodating the 3-shift need and therefore be noncompliant with the new regulation. Ifthe new regulation had fines associated for any vessel not incompliance with the new guidelines, the results for the steamboatscenarios would only get worse. In this case, the diesel-poweredboats could accommodate the anticipated ruling and therefore continueto operate without fear of being unlawful. Another disadvantage against rehabilitating Cynthia was its age. Atthe time of the decision the steamboat had already been in operationfor 23 years. Although, the realizable cost to renovate the steamboatwas already known, the intangible aspect of this alternative was thestatus of the boat once refurbished. It should be noted that withany overhaul, there are still aspects to the boat that will remain?old? and will eventually fail. The maintenance and repairs listed in