StudentShare solutions
Triangle menu

Victoria Chemicals plc-Merseyside and Rotterdam Projects - Case Study Example

Not dowloaded yet

Extract of sample
Victoria Chemicals plc-Merseyside and Rotterdam Projects

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. This is based on the calculation carried out by the average annual earnings per share contribution of the project over the economic life of the project using the number of outstanding shares at the recent financial year. The payback period which is the number of years which are necessary for free cash flow of the project to amortize the initial project outlay completely for the project is within the maximum payback period which is six years. The Net Present Value of the company is positive an indication of a better performing project. The internal rate of return of the project which is 24% is more than 10% and this is an indication of how attractive the project is. A summary of the performance of the Merseyside project is as follows 2008 2009 2010 2011 2012 Output 267,500 267,500 267,500 267,500 267,500 New Gross Profit 21.72 24.83 24.83 24.83 24.93 Old output 250,000 250,000 250,000 250,000 250,000 Free cash flow 1.27 3.92 3.86 3.77 3.08 Incremental gross profit 2.32 5.42 5.42 5.42 5.42 Based on the above analysis, it is quite evident that Merseyside project is quite attractive in terms of its performance and this makes it a good project for investment. The Merseyside project will be of great help to Victoria Chemicals as it would lead to an increase in free cash flow, increase in gross profit and increase in output for the company. The increase in output would see the company operate in full efficiency and to remain competitive in the market. Even though the Merseyside project seems promising in terms of output and return, the plant operations will be disrupted in the course of upgrading the technology in the company which will then affect the total output of the company. The period at which the plant will not be operating will mean that the company will temporarily lose its business from the close of the customers. The temporal close of business and clients may be a cost to pay by the company as it may end up losing the customers due to the inconveniences caused. The table below shows the assumptions made towards the DCF Analysis of the Merseyside Project: Annual output in metric tons 250,000 Output gain 7% Gross margin rate 12.5% The gross margin rate and the output gain are standard and this means that the company (Victoria Chemicals) will not take a long time before it enjoys the full benefits of the investment. This ...Show more

Summary

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. …
Author : maye72
Victoria Chemicals plc-Merseyside and Rotterdam Projects essay example
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the case study on your topic
"Victoria Chemicals plc-Merseyside and Rotterdam Projects"
with a personal 20% discount.
Grab the best paper

Related Essays

Risk Attitude Affect Projects
The sales income for the Japanese cellphone market for the organization was $11.2 billion in 2006 (Sridhar & Vadivelu, 2008, p. 12). Leading handset vendors included Panasonic, NEC, sharp and Fujistu that competed with other multinationals like Nokia and Motorola.
3 pages (750 words) Case Study
Victoria Chemicals
Name: Institution: Professor: Date: Case analysis- Victoria Chemicals plc Introduction The case is about the different ways through which Victoria Chemicals plc can fund the modernization of the Merseyside works project from the corporate headquarters in order to improve its financial performance in order to increase its Earnings per Share.
5 pages (1250 words) Case Study
Transport and Management Projects
(Net MBA, 2007)3 The delay of 5 days in backing up of Atlas Web Site causes the decrease of float time by 5 days or increase of minimum and maximum time periods for the project to 80 to 90 days. The reason is the backing up of Atlas Web Site also is an individual task that is not done simultaneously with any other one.
6 pages (1500 words) Case Study
HSBC Plc
Through its international network linked by advanced technology, including a rapidly growing e-commerce capability, HSBC provides a comprehensive range of financial services: personal, commercial, corporate, investment and private banking; trade services; cash management; treasury and capital markets services; insurance; consumer and business finance; pension and investment and management; trustee services; and securities and custody services.
10 pages (2500 words) Case Study
Persimmon and Henry Boot Plc
The company expanded its horizons rapidly and successfully moved into large scale public works and housing projects. The company was incorporated 1919 when Charles Boot took over the business after the death of his father Henry Boot. Charles Boot headed the efforts of company to obtain various government contracts during the war period.
15 pages (3750 words) Case Study
Tenn-Tech Plc
This situation is made more precarious by the fact that now even the shareholders of the Tenn-Tech Plc are getting worried about the poor performance of the company. If the circumstances are allowed to proceed along the existing line, they are certainly bound to have a debilitating impact on the over all sustainability of Tenn-Tech Plc.
4 pages (1000 words) Case Study
Diageo Plc
It is located in the United Kingdom and boasts of over twenty two thousand employees situated throughout the world. Besides this, it made close to 7.5 billion in sales during the year 2007. (Wright, 2008) The Company began way backing the eighteenth Century.
8 pages (2000 words) Case Study
The Case of Cross-Border Chemicals
During the formation of NAIOS, environmental treaties were not discussed. However, this has come back to haunt the regions bound by the treaty. The environmental issues have revealed a
1 pages (250 words) Case Study
Alto Chemicals Europe
The author analyzes different customer segments in the marketplace and the needs of these segments differed. As an entry strategy ACE competed on the price plank and targeted customer segments where price played a very significant role. The sales force promised better product performance to convince buyers to move from Barium (Ba) to Tin (Sn).
2 pages (500 words) Case Study
Auditing-Accsys Technologies Plc
Such false indicators will result in jeopardising the wealth of its investors, as they invest in a company based on its financial
5 pages (1250 words) Case Study
Get a custom paper written
by a pro under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
YOUR PRIZE:
Apply my DISCOUNT
Comments (0)
Rate this paper:
Thank you! Your comment has been sent and will be posted after moderation