GRIFFIN ET AL.: ECONOMIC AND FINANCIAL ANALYSIS 



vessels in 1973 prices. Depreciation charges were 

 calculated using the straight-line method, based 

 on the estimated 1973 replacement value for each 

 vessel, and using an 8-yr depreciable life with 

 35% book salvage value. For the amortization 

 schedule, the same 1973 equivalent new vessel 

 costs were used, with 67% of the cost financed at 

 a 9% interest rate, for 8 yr, and with 12 equally 

 amortized payments per year. These terms were 

 found to be representative for 1973 through inter- 

 views with officers of financial institutions which 

 engage in shrimp vessel financing. The specific 

 amount of interest reported in each costs and 

 returns budget is for the fifth year of the amorti- 

 zation schedule since the majority of the vessels 

 in the sample taken were from 3 to 6 yr old. 



Required return to equity capital is economic 

 rather than financial in concept and is an 

 attempt to place a value on the opportunity cost 

 of the equity capital committed to an investment. 

 At the time an owner invests in a shrimp vessel 

 he has several alternative investments available 

 with various rates of return associated with each. 

 Theoretically these different rates of return are 

 representative of the relative risks associated 

 with each — that is, risk and return vary directly. 

 Because the alternative investment opportuni- 

 ties are different for each owner, in the interests 

 of standardization the rate of interest charged by 

 financial institutions for shrimp vessel financing 

 (9%) was assumed to be the highest alternative 

 rate available to the owners for an investment of 

 equivalent risk and can be adjusted by an indi- 

 vidual owner to reflect his own investment 

 alternatives. 



A note of explanation is necessary concerning 

 the cash flow budgets and cash flow analysis. 

 Terminal vessel value (sale value) and holding 

 period were established by asking each vessel 

 owner to estimate, in 1973 dollars, what that 

 same vessel would be worth as a used vessel if he 

 had held it for the number of years that he 

 customarily fishes a new vessel. Respondents 

 indicated they fished a new vessel from 3 to 15 

 yr, with 8 yr being the most frequent response, 

 and that even in periods of relative price stability 

 an 8-yr-old shrimp vessel is worth approximately 

 65% of its original cost. Furthermore, that 

 difference between the 35% book value for 

 depreciation purposes and the 65% terminal 

 value is evidenced by the fi*equency of income 

 taxes levied on vessel owners for depreciation 

 recapture at the time of replacement. For those 



reasons, an 8-yr holding period and a 65% 

 terminal value were used in the cash flow 

 budgets. 



RESULTS 



Classification of Vessels 



Vessels were grouped according to construc- 

 tion, keel length, and effort index (Table 1). All 

 vessels in the sample were either wood or steel. 

 Vessels were divided into three keel length inter- 

 vals: 45-62 feet, 63-69 feet, and 78-80 feet. The 

 range of effort indices was divided into three 

 intervals: 1.64-1.89 units, 1.90-2.19 units, and 

 2.20-2.51 units. Using these groupings for clas- 

 sification, 12 combinations were possible and the 

 vessels in the sample fell into 9 of those possible 

 combinations (See Appendix). 



Predicted average cost values for the 115 

 vessels were plotted and vessels were classed into 

 five general categories as shown in Table 1, 

 where class I is the highest cost curve and class V 

 is the lowest. Classes I and II, the two highest 

 cost curves, consist entirely of steel vessels 

 whereas classes III, IV, and V consist entirely of 

 wooden vessels. The position of the average cost 

 curves seem to be related to vessel length for 

 each type construction except for class IV which 

 includes two length intervals. 



These results are not surprising. Previous 

 research by Nichols and Griffin (1974) indicated 

 that smaller, less powerful wooden vessels can 

 produce a given quantity of shrimp at a lower 

 cost than can a larger, more powerful steel vessel: 

 As a matter of fact, their research showed that a 

 50% reduction in total effort exerted by the 

 shrimp fleet would only reduce total catch by 

 about 10%. 



For the 4-yr period, 1962-65, the average vessel 

 exerted about 1. 16 units of effort in a day fished 



Table l. — Classification of Gulf of Mexico shrimp vessels, 

 based on construction, keel length, and effort index from a 

 sample of 115 vessels, 1973. 



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