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Victoria Chemicals plc-Merseyside and Rotterdam Projects
Finance & Accounting
Pages 5 (1255 words)
This case is about two mutually exclusive projects-the Merseyside and Rotterdam projects. The case requires the measurement of the attractiveness of each of the two projects based on their investments before the proposal is presented to the Chief Executive Officer.
James Fawn the vice president of the Intermediate Chemicals Group (ICG) and John Camperdown, the financial analyst met to review the two projects. The proposals submitted by plant managers from both Liverpool and Rotterdam required an expansion of the polypropylene output of the respective plants by 7%. The strategic analysts in Victoria Chemicals held the view that an increase in polypropylene by 14% would not make sense though a 7% would do. This would compel them to approve one of the projects. The rational analytical process to use in extricating the ambiguities of the present measures of investment attractiveness of the two projects will be done through a thorough analysis and evaluation in terms of their net present value, payback, growth in earnings per share and internal rate of return to determine which of them is attractive for investment. After the evaluation, the best project based on its attractiveness will be chosen. 1. The proposal from Merseyside, Liverpool This project would retain its flexibility in order to add technology in the future. The investment criterion for this project is as follows: Average annual addition to EPS GBP 0.22 Payback period 3.8 years Net Present Value GBP 10.5 million Internal rate of return 24% The contribution to net income for the project is a positive one. ...
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