Victoria Chemicals PLC
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 are some changes that need to be done in the Greystock’s analysis. The proposed analysis satisfies all the performance ‘hurdles’. Finally, there is a recommendation included for the management to discuss.
Company Overview
Victoria Chemicals PLC is a producer of polypropylene, a chemical commodity. A corporate raider has accumulated the company’s common shares. Thus, the earnings had fallen by 38.8% from 250 pence per share to 180 pence per share at the end of 2007. The proposed expenditure of GBP 12 million is hoped to improve the company’s financial performance and add values to the shareholders.
Proposal evaluation (Greystock analysis)
The Merseyside Project (MP) is a modernization program for the Merseyside Plant, one of two of Victoria Chemicals’ (VC) plants. MP can be said as a conventional cash flow project with an initial cost outlay of GBP 12 million and positive cash inflows for the next 15 years (2008-2022). Evaluation of a capital expenditure includes discounting or non-discounting methods. Victoria Chemicals (VC) uses the discounting methods, which are net present value (NPV), and internal rate of return (IRR). The discount rate used for the NPV evaluation is a nominal rate of 10%. For the hurdle rate in the IRR
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 are some changes that need to be done in the Greystock’s analysis. The proposed analysis satisfies all the performance ‘hurdles’. Finally, there is a recommendation included for the management to discuss.
Company Overview
Victoria Chemicals PLC is a producer of polypropylene, a chemical commodity. A corporate raider has accumulated the company’s common shares. Thus, the earnings had fallen by 38.8% from 250 pence per share to 180 pence per share at the end of 2007. The proposed expenditure of GBP 12 million is hoped to improve the company’s financial performance and add values to the shareholders.
Proposal evaluation (Greystock analysis)
The Merseyside Project (MP) is a modernization program for the Merseyside Plant, one of two of Victoria Chemicals’ (VC) plants. MP can be said as a conventional cash flow project with an initial cost outlay of GBP 12 million and positive cash inflows for the next 15 years (2008-2022). Evaluation of a capital expenditure includes discounting or non-discounting methods. Victoria Chemicals (VC) uses the discounting methods, which are net present value (NPV), and internal rate of return (IRR). The discount rate used for the NPV evaluation is a nominal rate of 10%. For the hurdle rate in the IRR