Estimate the annual cash flows for the full 27 years of the project (which includes the

two year lag before the ship is delivered). Assume that the vessel will be operated for

its full life, and sold after 25 years of service for $5M. Also note that depreciation of

the full $39M cost of the vessel will begin after it is delivered (i.e., no depreciation in

years 1 or 2 prior to delivery). In addition, assume the initial $500K investment in

working capital occurs at the time of delivery of the ship, and that the final working

capital balance will be zero at the end of the last year of service (i.e., all working

capital will be recovered during that year). Create two different cash flow scenarios

based on two different assumptions regarding taxes. First, assume that Ocean

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

is located in Hong Kong, where owners of Hong Kong ships are not required to pay

any tax on profits made overseas and are also exempted from paying any tax on profit

made on cargo uplifted from Hong Kong.

Case is attached. Exhibits are provided in the excel document.