After extensive review of the available market we have come up with a recommendation on a vessel for your purchase as well as a recommendation on the proposed purchase price. We will also suggest a negotiation strategy. We have used regression analysis as well as multiple regression analysis to compare various factors affecting the proposed valuation of the vessel. We have also studied comparable vessels that have recently sold to best estimate the purchase price recommendation. Using correlation analysis, we have found that age is the best predictor of the value of a vessel followed by size of the vessel and then by the Capesize Index. With the use of multiple regression analysis we have determined that the use of any single factor in order to predict the sale price of a vessel is unreliable.
However combining the three variables of age, size and Capesize Index we have found that we can accurately predict the sale price of a vessel. We recommend the purchase of the vessel Bet Performer, a vessel that meets your physical requirements and the owners are willing to sell. We recommend that you offer an aggressive bid at the market price in order to secure the purchase. Our data shows a predicted value for Bet Performer in May 2008 of $125 US$ (million).It is our recommendation that you place a bid on the vessel Bet Performer of $125 US$ (million).
Our recommendation is based on many assumptions that may or may not hold true going forwardSales vs. Age Comparison: Correlation Analysis: Price vs. Various Variables: Price vs. Capesize Index Price vs. Dead Weight: Recap of Observations:How much is the Bet Performer worth based on comparable transactions? Which ship is the best reference transaction (the closest comparable)? Bet Performer’s worth will be around $135 million in May 2008. Based on the criteria of Age, DWT, Capesize Index, and recentness of transaction, the closest comparable ships are: Sale DateVessel NameSale Price( in millionsDead-Weight Tons ( in million)Trailing 1-Year Average Monthly Baltic Dry CapesizeIndexAge at Sale (Number of Years)Nov-07Sumihou$106.
0171.19,66311Mar-08Cape Sun$135.0171.711,1939 Using regression analysis, answer the following questions: What is the expected relationship between ship price and each factor listed in Exhibit 4 (size, age, and charter rates)? What is the economic logic for why each factor might affect ship value (cash flows or risk)? ? The Correlation Analysis provides the extent of relationship between the variables – a correlation coefficient has a value between -1 and 1, with a 0 value indicating that there is no relationship between the variables and a -1 or 1 indicating that there is a perfect negative or positive correlation Sale Price ($US millions)Dead-Weight Tons Trailing 1-Year Average Monthly Baltic Dry Capesize IndexAge at Sale (Number of Years)Sale Price (in millions)1 Dead-Weight Tons ‘(000)0.5148051 Trailing 1-Year Average Monthly Baltic Dry CapesizeIndex0.
3523360.0427514061 Age at Sale (Years)-0.78749-0.4312639790.217366671Age has got the highest correlation with Sale Price. However, the correlation is negative owing to the decreasing future cash flow in addition to increased risk with increasing age.
A vessels valuation can be determined using the “incomeapproach” or ” marked to Market approach ” by determining its present value of future cash flows. DWT has the next highest value of correlation and it is positively correlated, as the future cash flow increases with increasing Tonnage. Capesize Index is positively correlated with the Sale Price. Increasing Capesize Index means better state of economy, higher demand, and shortage of ships. Hence, the Sale prices increase with the Index. Which single factor is the best predictor of ship price?Given the highest correlation of Age with the Ship Price, Age contributes maximum to the movement in ship prices. How well do all three factors jointly explain ship prices?The variables individually do not correctly predict the sale price since the R-square and Adjusted R-square values obtained from Regression analysis are very low.
The regression analysis with all the three variables combined together, gives 92% R-square and 91.5% Adjusted R-square values which show a close fit of the predicted values with the given values. Thus, the linear combination of all three variables provides the best prediction for Sales Price.Using all three factors, what is the predicted price for the Bet Performer: Predicted price in May 2008 = $125 Million(Refer to the Worksheet – All Vars VS Price) CONCLUSION: It is our recommendation that you place a bid on the vessel Bet Performer of $125 US$ (million). Through the use of multiple regression analysis, as well recent sales of comparable vessels, our data shows this value as an accurate predicted valuation of this vessel. With the use of multiple regression analysis we have determined that the use of any single factor in order to predict the sale price of a vessel is unreliable.
However combining the three variables of age, size and Capesize Index we have found that we can accurately predict the sale price of a vessel. We recognize that this is an aggressive price but we feel that due to the current heated market conditions, it is necessary in order to secure the purchase of the vessel.