Victoria Chemicals

1052 Words Aug 30th, 2013 5 Pages
Case Study 1 Victoria Chemicals (A) MBA9005 Ashley James

Executive Summary
The board needs to question a number of cash flow decisions made in the proposal by Morris. Namely; sunk costs, cannibalization, cash flows from unrelated projects and implication of future Capex programs for the transport division into the Merseyside project. There are also a number of conflicts of interest and other ethical dilemmas that arise in the case which need to be addressed in the assessment of the project. The board needs to take action, so the overall benefit of the company is the primary objective for management and especially for such significant investment decisions. On the basis of recognizing cash flows differently from original proposal, the
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If the project were to proceed immediately, the transport division would have to bring forward a capital expense project by 2 years, and the controller of the transport division thought it would be an easy way to finance this expenditure in the future if it was included in the Merseyside upgrade, even though he is currently working with excess capacity. In an effort to keep some harmony within the management of Merseyside we have reflected half of the tank cars cost of GBP1 million in the projects expenses and depreciated over the 15 years of the equipment. A serious lack of good leadership is highlighted throughout the case, none more so by the attempt of the Assistant Plant Manager to get the EPC project included in the proposal, even though it has already been rejected on sound business reasons, i.e. a negative NPV. Morris should reject this notion of including the EPC project for consideration with her proposal. She should question the estimated returns of the EPC project of $25,000 annually for infinity. EPC is a declining market and is slowly being replaced by other compounds. EPC will not be around in the market for infinity, so VC will never realise all of those profits. The question of layoffs should not form part of making a capital investment decision. There is a clear conflict of interest, with the Assistant Plant Manager promoting the project for personal gains through the bonus

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