Essay on Victoria Chemicals

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Case Study Week 3 - Victoria Chemicals PLC

1. What changes, if any, should the plant manager (Morris) ask the financial controller (Greystock) to make to his analysis?
Morris should ask the Financial Controller to the make the following changes to his analysis:
• Include the cost of the rolling stock. These would become an essential asset of the Merseyside Works. The investment to occur in 2010 and then depreciated over the following 10 years. These would become an asset of the Merseyside works.
• Ignore the requests of the Director of Sales. The assumption is that Victoria Chemicals uses consolidated financial accounting in that they will consolidate the books of both Rotterdam and Merseyside. The impact of cannibalisation will be
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Therefore, £2m would need to be invested in 2010 to facilitate the additional volume. Depreciable life of 10years. This should be included in capital outlay. ii. Director of Sales
Cannibalisation of Rotterdam to get rid of excess at Mersey. Cannot take the approach of not undertaking appropriate investment projects if it disadvantages another division of the company. The individual operations have a responsibility to operate as efficiently as possible to return maximum value to the stakeholders. It is highly likely that any incremental business would come from other competing plants that have higher production costs. There is nothing to indicate that the upgrade would result in cannibalisation of the Rotterdam plant. Therefore this should not be a consideration. iii. Assistant plant manager (Tewitt) Proposed upgrade EPC plant. Investment required of £1m. Improve cash flow by £25k ad infinitum. However, NPV = -£750,000. Strategic advantages suggested by Tewitt resulting from the project, including increases in volume and prices when the recession ends, should be ignored. There is nothing to suggest that an increase in business would eventuate.
There is a clear conflict of interest with bonuses are linked to the size of the overall operation. This would bring into questions the motives for undertaking this project and could introduce some ethical issues.
This project would have the effect of diluting the return from the main plant upgrade as by itself

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