Get instant access to this case solution for only $19

Ocean Drilling Inc Case Solution

Solution Id Length Case Author Case Publisher
1364 640 Words (3 Pages) Thomas R. Piper Harvard Business School : 282050
This solution includes: A Word File A Word File and An Excel File An Excel File

Ocean Drilling Inc. was a US based leading company in offshore industry, which was used as outsource by various other companies for drilling related projects. Now Ocean Drilling had to purchase two semisubmersibles drilling rigs, but due to lack of government featured loans. It had to choose between the two foreign bids, one was from Japanese shipyard for $90 Million and the other one was from French shipyard for $96 Million. These bids held great risk in them due to fluctuating exchange rates, as being in the foreign currencies.

Untitled1584527767.png

Case Analysis for Ocean Drilling Inc Case Solution

Mr. Moore was given the responsibility of making a choice between the two bids by weighting them. He had two possibilities to make decision for choice. Either to sell the US dollars in French or Japanese forward market or to borrow in US at 20% and then convert it to Francs or yen. Now in order to make an efficient decision, both these bids have to be evaluated.

In order to evaluate both the bids we have to weigh the cost of debt. How much Ocean Drilling Inc. has to pay for these bids and also the risk pertaining in every bid.

 

Evaluation of Bids

 

 

 

 

 

 

 

 

 

 

French Shipyard

 

Japanese Shipyard

 

 

 

 

 

 

 

Principal Amount

 

$96.00

 

$90.00

(In millions)

Maturity (Years)

 

8

 

10

 

Payment Schedule

 

 

 

 

 

Interest Rate Annual

 

10.50%

 

8.75%

 

Interest Rate Monthly

 

0.88%

 

0.73%

 

 

 

 

 

 

 

Required Down Payment

 

$24.00

 

$18.00

 

 

 

 

 

 

 

Yearly  payments

 

$13.32

 

$10.80

(In millions)

yearly Interest payment (1981)

 

$2.89

 

$3.63

(In millions)

Total Interest Paid

 

$23.12

 

$36.28

 

 

For year 1981

 

 

 

 

 

Earnings before Interest and Tax (1981)

 

$117.00

 

$117.00

(In millions)

Interest Payments

 

$32.89

 

$33.63

(In millions)

Earnings before Tax

 

$84.11

 

$83.37

 

Tax

 

$42.05

 

$41.69

 

Earnings after Tax

 

$42.05

 

$41.69

1981

Tax

 

50%

 

50%

 

After-Tax Cost of Debt

 

42%

 

44%

 

Moore should also have to consider the Down Payment which the company has to pay at the start. According to the Financial Statement of Ocean Drilling, it has $8 million in cash at the end of the year 1980, but it has to make Down payment of $24 Millions if accept French Bid or $18 Million if accept Japanese Bid. In order to pay the amount, the company has to sell some of the assets as it can’t go for another loan.

By keeping under consideration, all the calculations like that of cost of Debt, Interest Payments and the Net Income after satisfying the tax.

Get instant access to this case solution for only $19

Get Instant Access to This Case Solution for Only $19

Standard Price

$25

Save $6 on your purchase

-$6

Amount to Pay

$19

Different Requirements? Order a Custom Solution

Calculate the Price

Approximately ~ 1 page(s)

Total Price

$0

whatsapp chat icon

Hi there !

We are here to help. Chat with us on WhatsApp for any queries.

close icon