| Summary: | This paper is fundamentally based on the discoveries of Volume 1 and Volume 2 to further investigate whether the Medium Range Tanker (MRs) is worth investing in.
The concept of value creation is applied in this paper to assess whether the investment on MRs would generate values for investors, which reflected in two aspects including 1) MRs’ intrinsic value will be greater than the fair market value, 2) returns will exceed the cost of capital. This paper reviewed three valuation approaches and thus selected Income Approach, together with Market Approach to measure intrinsic value and fair market value. The returns are measured via two main methods which are Internal Rate of Return (IRR) and Net Present Value (NPV). The Return on Equity (ROE) analysis is also conducted as the complementary tool to measure the minimum return that an investor expects since MRs segment could not deliver a return that an investor is acceptable with. To measure the cost, a combined approach of WACC (Weighted Average Cost of Capital) with ROE analysis is adopted to estimate the cost to be 6.06%.
Hence, this paper determined different variables that are required for both Income Approach and Market Approach, including exploring various types of acquisition(i.e. purchase, time-charter) and employment (i.e. voyage-charter, time-charter) of MRs and thus generated 79 asset classes as the research object, in which 29 of them are created by purchasing strategy, 50 are made by time-chartering in strategy.
This paper found out either acquiring MRs via purchasing or time-chartering is able to produce an IRR in excess of the cost of capital, and a positive NPV as well. There are 16 asset classes from purchasing strategy and 25 asset classes from time-chartering strategy satisfy the results. The best portfolios for 5 MRs to achieve the maximum return for the next 5 years are buying 3 MRs and time-chartering 2 MRs, and then employing them on time-chartering market, either in 1 Yr T/C for 5 years, or the mix of 1 Yr T/C and 3 Yrs T/C. It is not recommended to trading them in the spot market.
Therefore, this paper concluded that MR’s intrinsic value will be greater than the fair market value with the freight band of $7,485 and $10,458. Thus, the MRs market is worth investing in.
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