Victoria Chemicals Case Analysis
Case Studies Report:
Victoria Chemicals
This report will be covering the several capitals investment aspects in which are associated with the case – Victoria Chemicals PLC (A): The Merseyside Project, written by Robert. F. Bruner.
Introduction
In the case, Victoria Chemicals, a fictional company, were under the pressure of its investors to improve its performance as the earnings per shares (EPS) has decreased from 250 pence in 2006 to 180 pence in 2007. Victoria Chemicals is a producer of polypropylene that has two factories in Merseyside Works and Rotterdam, Holland. In addition, there are seven major competitors in the market producing polypropylene.
As previous management has limited capital expenditure for Victoria Chemicals, hence the company has not potentially grown to its optimal state of producing with maximum production profitability. As such, the new plant manager, Lucy Morris plans to propose a project in which has a capital expenditure of GBP12 million to refurbish the current status of the polypropylene producing plant in Merseyside. Cost and benefits of the capital project will be contemplated in this report along with any issues relating to the undertaking of the project. All figures in this report are obtained from Exhibit 2 of the case study.
Nominal Benefits of the Project the benefits offered by this project are energy savings and improvement of gross profit margin of the Merseyside plant. Annual energy savings of 1.25 percent of sales amount in the first 5 years which is estimated to be at £2.11M (1.25%*£168.75M) and 0.75 percent of sales amount in the additional 5 years (£1.27M) are of expectation from the project. In addition, gross profit margin, which is the difference between revenue and cost, will increase by 1 percent from 11.5 percent, which averaged to an incremental gross profit annually of £4.16M for the next 15 years.
Victoria Chemicals and Capital Expenditure Proposal
In order to obtain approval of
Victoria Chemicals
This report will be covering the several capitals investment aspects in which are associated with the case – Victoria Chemicals PLC (A): The Merseyside Project, written by Robert. F. Bruner.
Introduction
In the case, Victoria Chemicals, a fictional company, were under the pressure of its investors to improve its performance as the earnings per shares (EPS) has decreased from 250 pence in 2006 to 180 pence in 2007. Victoria Chemicals is a producer of polypropylene that has two factories in Merseyside Works and Rotterdam, Holland. In addition, there are seven major competitors in the market producing polypropylene.
As previous management has limited capital expenditure for Victoria Chemicals, hence the company has not potentially grown to its optimal state of producing with maximum production profitability. As such, the new plant manager, Lucy Morris plans to propose a project in which has a capital expenditure of GBP12 million to refurbish the current status of the polypropylene producing plant in Merseyside. Cost and benefits of the capital project will be contemplated in this report along with any issues relating to the undertaking of the project. All figures in this report are obtained from Exhibit 2 of the case study.
Nominal Benefits of the Project the benefits offered by this project are energy savings and improvement of gross profit margin of the Merseyside plant. Annual energy savings of 1.25 percent of sales amount in the first 5 years which is estimated to be at £2.11M (1.25%*£168.75M) and 0.75 percent of sales amount in the additional 5 years (£1.27M) are of expectation from the project. In addition, gross profit margin, which is the difference between revenue and cost, will increase by 1 percent from 11.5 percent, which averaged to an incremental gross profit annually of £4.16M for the next 15 years.
Victoria Chemicals and Capital Expenditure Proposal
In order to obtain approval of