Diamond Chemicals plc. : The Merseyside Project

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FINC421 – Case Study in Corporate Finance Case Report Diamond Chemicals plc. : The Merseyside Project Introduction The goal of this report is to analyze and evaluate the capital budgeting decision of Ms. Morris and suggestion to the senior management of Diamond Chemicals PLC if sufficient capital should be allocated for the proposed £12 million expenditure to modernize and rationalize the polypropylene production line at the Merseyside Plant. The project has been proposed to improve the product output of Diamond Chemicals’ Merseyside factory. However, recently, different departments have mentioned problems such as capital expenditure, marketing cannibalization, discount rate etc.…show more content…
Even capital-expenditure can provide lots of benefit to the company, but it will also lead to a great loss to the company if there is a miss forecasting of the proposal. To avoid unnecessary risk of causing the failure of the proposal, company will evaluate the capital-expenditure proposal with a complicated scheme to ensure the risk is reduce to the lowest level. Changes in DCF Transport Division It is a good idea to purchase trucks. Greystock disagree with that cause by his misunderstanding. When we try to reflect this in to the discount cash flow, it has an obliviously decrease in payback period. And the NPV, IRR have an increasing too. It must be benefit for our project. Director of Sales Our target wants to maximize the profit of the company. We should find a way to sell out all the products. It is sad to us if we must cut the extra production. According to our testing, maximum cannibalization will make the NPV, IRR and EPS decrease nearly half of current expectation. We don’t want to see that. Assistant plant manager We agree it may be a good choice in the long term (more than 20 years). But, we are doing the 15 years forecasting now. And it will be more difficult to predict the longer future. Therefore, we can’t see the benefits of your suggestion. However, we will put this as our backup choice. Analyst from the treasury staff Andrew Gowan has done a good

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