Victoria Chemicals PLC

1854 WordsApr 24, 20158 Pages
Victoria Chemicals PLC: The Merseyside Project Prepared by Gabriela Tiffany Executive Summary The purpose of this report is to provide an understanding and analysis regarding the project proposed. The report starts with a brief overview of the company and the project proposal. This report then continues with assessing the concerns of Transport Division, ICG Sales and Marketing Department, and Treasury Staff. Furthermore, this proposal will also evaluate the recommendation from the Assistant Plant Manager. Then, the proposed analysis is compared to the Greystock’s analysis. The NPV and the IRR of the proposed analysis are lower than the Greystock’s. Nonetheless, both analysis state that the project is attractive to the company. There…show more content…
However, this report will assume the worst-case scenario4. Additionally, the close down period assumption of 45 days seems to be too short. This is a question that should be raised to the management on how did they arrive to that number. A project that is this massive might need construction time of 6 months, at least. If the downtime period is longer, then the output loss would be greater. Finally, the new NPV calculation is GBP 0.39 million with IRR of 7.4%. the previous calculation by Greystock is overstated. The project generates positive NPV and satisfies the cost of capital hurdle rate. Ethylene-propylene-copolyme rubber (EPC) production line Ideally, all projects should add value to shareholders. In this case, the EPC project already has a negative NPV, therefore, the inclusion of the project will not maximize shareholders’ value. Moreover, EPC is a relatively small product in the European chemical industry. Combined with its marginal profitability, EPC product line project has no clear advantage to the company. This also seems like a huge bet as the recession has not ended and this project is betting on the unclear economic recovery. Including the negative NPV project into MP is not acceptable. Tewitt’s statement about linking his bonus with the operation makes him exposed to conflict of interest. Comparison with Greystock’s DCF analysis In the Greystock’s analysis,the NPV is GBP

More about Victoria Chemicals PLC

Open Document