In early August 2007, Paul White, vice-president of finance of Savannah Petroleum Company, was reviewing a proposal that the company\’s parent, Edgewater Oil Company, participate in a joint venture with Gulf Coast Towing Company to make the American flag tanker Monterey a jumbo tanker. Edgewater held an option that gave it until September 18, 1977, to decide if it would join Gulf Coast in the venture.
Savannah Petroleum Company is a distributor of home heating and industrial fuel oil. It serves a number of heating oil retailers, industrial firms, and public utilities in southeastern Georgia. The company operates a fuel pier, tank farm, and truck-loading facility in Savannah, Georgia. All petroleum products are received by tanker and distributed to customers by barge or truck. Although most petroleum products are imported ……………………omitted……………………………..
In preparing his analysis, Mr. White realized that he should include adjustments for inflation, but he was uncertain as to how to reflect them in the relevant cost, revenue, and interest rate factors. He believed, however, that operating costs would increase by at least 5% per year, and that the charter rate would escalate during the life of the tanker to cover increased costs but would probably be fixed for three-year intervals by each lease agreement.
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