Question

Compass maritime services llc valuing ships solution

How much is the Bet Performer worth based on comparable transactions? Which ship is the best reference transaction?

Answer 1

Comparable transaction is a conventional method of evaluating the value of something that is ready for sale. To value a ship, one had to identify a set of “comparable” ships where comparability was based on four main factors: ship type, size (DWT), age, and condition.

The Bet Performer was a 11 year old ship, built in 1997, 172,000 DWT capsize bulk carrier. From the Exhibit 4, there are five ships which are the most comparable to Bet Performer. They are Martha Verity, Ingenious, Sumihou, Cape Sun, and Coppersmith. These ships all have the most similar characteristics, in terms of ship type.

This is logical because, larger the ships, more load could they carry, and thus make higher profits, so are priced higher.

Relationship between Age and Ship Price: From the regression, we find that as the ship ages by one year, the price of the ship drops by $ 4.54 mln. This makes sense because as with any other vehicle or asset, the efficiency of the ship drops with age. As it gets older, the carrying value of the ship lowers due to depreciation.

Relationship between Charter rates and Ship Price: With one point increase in the Capesize ship index, there is a slight increase in the price of the ship by $0.007 mln. The Capesize ships took like a year to build, and are good for 25 years, after which they are demolished and sold for scrap. The economics of this “ship breaking” differed by ship size and type category. So higher this index, higher is the price of the ship.