Victoria Chemicals is one of the leading producers of Polypropelene, a polymer that is used in many products ranging from carpet fibers, automobile automobile components, packaging film and more. When Victoria Chemicals started up in 1967 they built two plants, one in Merseyside, England and one in Rotterdam, Holland. Both plants were identical to each other and produced an equal amount of goods. Morris Greystock, the controller of the Merseyside plant had notice a decline in stock price in from 250 pence per share in 2006 to 180 pence per share in 2007 and knew he had to do something. Facing pressure from the investors and wanting to increase production efficiency, he decided to renovate the Merseyside plant so Victoria Chemicals can lift itself back to where it once was and continue to be one of the major competitor’s in the worldwide chemical industry. After taking all the costs and benefits into consideration, Greystock put together his own analysis in which he based it on four difference components; Earning per Share, Payback Period, Net Present Value, and Internal rate of return. Soon after many people looked at his analysis and had several questions and suggestions to give to Greystock. We will see soon enough that Greystock’s Analysis had many flaws that needed to be fixed and how it really should have been done.
II. Victoria Chemicals and it’s Capital Expenditures
Victoria Chemicals incorporated four different types of methods to determine its capital budgeting proposed projects. They include Earnings per Share (EPS), Pay Back Period (PBP), NPV, and the Internal Rate of Return (IRR). Of the four methods, the two favorable to use for evaluation would be NPV and IRR while the EPS and PBP would be less favorable to use because of its evaluation process. Using NPV is a good method to use to evaluate the project because it takes in account for all the costs relevant to the project and includes all the cash flow of the