American Chemical Corporation Analysis

1486 Words Oct 31st, 2012 6 Pages
Executive Summary
American Chemical Corporation’s Collinsville plant in Alabama is being sought by Dixon a speciality chemicals company. This plant mainly specialises in Sodium Chlorate production and fits well with Dixon’s strategy of supplying chemicals to paper and pulp industry. It would also complement Dixon’s existing product line. The plant costs $12million in investment and requires up to$ 2.25 million for upgrading to new technology.
An in-depth investigation and analysis is conducted for both the company and the industry to accurately determine the worth of investment in the Collinsville plant. Net present values are calculated for all possible scenarios. After a thorough analysis of the data, suitable recommendations are
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Besides, due to upward revaluation of assets, depreciation was expected to increase. 3. Impact from adoption of technology: Depreciation would increase and Dixon was required to pay all costs related to the installation of laminated electrodes. 4. Impact of Financing of acquisition: Temporarily increase Debt to capital ratio to 47%. Target debt to capital ratio: 35%
Valuation
The Next important step is the valuation of sodium chlorate plant i.e. Collinsville Plant for Dixon Company.
The given values and assumptions are summarised in the following tables: Given | Sales | Remains same | | Price of NaClO3 | Increased by 8% per year | | Power | Increased by 12% per year | Assumptions(Without Laminate) | Graphite Cost | Increased by 5% per year | | Salt and Other Costs | Increased by 6.45% per year | | Labour Cost | Increased by 10% per year | | Maintenance Costs | Increased by 8.4% per year | | Other Costs | Remains same | | Selling Charges | Increased by 11% per year | | R&D Costs | Increased by 7% per year | | Depreciation | Increased by 4.6% per year | Assumptions(With Laminate) | Graphite Cost | Nil | | Power Costs | Decreased by 20% from graphite rod plants | | Other Costs | Remains same | Key parameters | Target Debt to Capital Ratio | 0.35 | | Rf | 9.5 | | Rm - Rf | 8.5 | | Rd | 11.25 | | Re | 20.6945 | | WACC | 15.498925 |

Using NPV