Victoria Chemicals Report

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Introduction The following report shows that the proposal of the modernisation project should obtain funding from the corporate headquarters of Victoria Chemicals. The project has an initial outlay of GBP12 million to renovate and rationalise the polypropylene production line at Merseyside plant. This is done in order to make up for deferred maintenance and exploit opportunities to achieve increased efficiency. This report will look at the following four main areas of concern in order to calculate the feasibility of this Merseyside Project: * The cost of GBP2 million for the purchase of new rolling stock being allocated to the Transport Division or to the Merseyside project. * The cannibalization affect on Rotterdam…show more content…
The Transport Division would have to pay nothing if it was included in the initial outlay of the Merseyside Project, yet the Transport Division would gain the benefits from the project with extra throughput 2 years early at no cost to them, except increased maintenance of their trucks. We do acknowledge that this is a big assumption to make saying that the Merseyside project should not take on any transport costs. Therefore we put in the clause that if taking on the Merseyside project decreases the NPV of their project we can come to some sort of agreement over the percentage of costs each division should take for the purchase of the new tank cars. There is also an agency problem here with the executive VP of Transport Division and Intermediate Chemicals Group who receive an annual incentive bonus pegged to the performance of their division. Hence both executive VP’s would want to reduce costs as much as possible and try off load any cost they can to another division. Concerns of the ICG Sales and Marketing Department The director of sales raised the issue that the company wouldn 't be able to sell the extra output that the project would produce. Instead of selling more units in total the Liverpool plant would just cannibalize Rotterdam’s sales. Therefore the company would not be able to take full advantage of the efficiencies of the new project. We disagree with the directors’ belief that the new sales will all be

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