Diamond Chemicals Plc (a): the Merseyside Project

ii. The project should be accepted if the NPV is positive because such a project increases shareholder value.

Diamond Chemicals is producing polypropylene at Merseyside, England and in Rotterdam, the Netherlands. Both factories are identical in size, age, and plant design.

The diamond cartel has been in existence for over a hundred years. (Spar: 2006) It has faced many issues in order to survive and prosper. (Kretschmer: 1998) Rhodes’ method was sufficient during the early 1900s. (Spar:2006) By 1930, the price of diamonds had fallen and the war was looming; Europeans were not interested in buying diamonds. (Epstein: 1982) It changed ownership to the Oppenheimers around about the Great Depression. Thus began the exploitive marketing tactics of the 20th century. (Epstein: 1982)

If the discount rate were 6 percent calculate the NPV of the project. Is this an

The NPV calculation provides a dollar measure of how much a project is expected to add to a firm 's value. Analysts may also want to know what the rate of return on a project is in order to compare it to the cost of capital. This rate is called the internal rate of return, or IRR.

Due to the NPV being a positive number listed in the above calculations it is my belief and will be the advantage of the company in question to go ahead with the project and expect a great return for their efforts. Cash flow is one of the most important facets of an organization. Net present value also known as (NPV) can be calculated before or after taxes ( CCIM Institute, 2007).

The prices of the deferral option and option to switch are zero and £0.11 million respectively. The total NPV of the upgrade is £8.32 million. The incremental earnings per share of the upgrade is £ 0.0172, the payback period is 4.23 years, and the internal rate of return is 24.3%.

Net Present Value (NPV) calculates the sum of discounted future cash flows and subtracting that amount with the initial investment of the project. If the NPV of a project results in a positive number, the project should be undertaken. It is the most widely used method of capital budgeting. While discount rate used in NPV is typically the organization’s WACC, higher risk projects would not be factored in into the calculation. In this case, higher discount rate should be used. An example of this is when the project to be undertaken happens to be an international project where the country risk is high. Therefore, NPV is usually used to determine if a project will add value to the company. Another disadvantage of NPV method is that it is fairly complex compared to the other methods discussed earlier.

The required interest rate which would return an NPV of zero is 9.22%. This is less than the cost of capital of 10%.

That being said, we would agree with the Treasury Staff to realize inflation, but with a different method.

In the case of Worldwide Paper Company we performed calculations to decide whether they should accept a new project or not. We calculated their net income and their cash flows for this project (See Table 1.6 and 1.5). We computed WPC’s weighted average cost of capital as 9.87%. We then used the cash flows to calculate the company’s NPV. We first calculated the NPV by using the 15% discount rate; by using that number we calculated a negative NPV of $2,162,760. We determined that the discount rate of 15% was out dated and insufficient. To calculate a more accurate NPV for the project, we decided to use the rate of 9.87% that we computed. Using this number we got the NPV of $577,069. With the NPV of $577,069 our conclusion is to accept this

The transport division will have to increase allocation to Merseyside. The proposal will generate excess capacity for the division and will increase the demand of new tank cars. The costs generated for these cars would cost GBP2 million and have a depreciable life of 10

NPV and IRR: When examining the NPV and the IRR of the Merseyside project, the numbers were very attractive. It had a positive net present value and an IRR above 10 percent. By these numbers, along with others,

Diamond began in 1912 as a member-owned agricultural cooperative association, specializing in processing, marketing, and distributing culinary, snack, in-shell, and ingredient nuts. After almost a century as a walnut

If the IRR is less than the capital then that project should be rejected because it is not very feasible. If the Internal Rate of Return is larger than the capital required for the project, it should be accepted while if the IRR is just equal to the capital then the project could be considered because it is at the very least earning its cost of capital and should therefore be accepted at the margin.