CASE STUDY: ECONOMY SHIPPING COMPANY (ABRIDGED)
Prof. Roy C. Ybanez
BASCON, Roland Billy
ORTIZ, Karmi Ann
SALVADORA, Jerick Cezar
02 October 2014
Steamboats are essential parts of Economy Shipping Company (ESC)’s business for it is the main mode of transporting coals from nearby mines to various delivery points. And with the ageing group of steamboats that the company owns, the company is concerned about the status of one of its steamboat – Conway, which is 23 years old and requiring immediate rehabilitation or replacement.
Analysis of Alternatives
ESC is in consideration of two alternatives as follows:
Alternative 1: Replace Conway with a new diesel-powered boat today; sell the ...view middle of the document...
One notable advantage associated with purchasing new diesel-powered boat over the rehabilitation of steam boat is its tax savings. With a lower operating cost and higher depreciation, the purchasing option saves approximately $22,300 and $5,700 annually in taxes respectively.
Aside from financial issues, one drawback of restoring Conway is its age. It was noted that at the time of decision, the steam is already in operation for 23 years. Even though there is already a price associated with the rehabilitation, the undisclosed part of this alternative was the status of the boat once refurbished. It should be noted there will still part of the boat that will remain old notwithstanding its renovation.