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Victoria Chemicals Corporate Finance Report

In: Business and Management

Submitted By jennylily4eva
Words 3931
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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 sales looking at both Sales and Marketing Department views.

* The modernisation of the ethylene-propylene-copolymer rubber (EPC) production line at a cost of GBP1 million.

* The correct use of inflation with regards to nominal figures

The report will discuss the concerns above giving a final decision on them. From these four different “hurdles” will be used to evaluate if the capital expenditure proposal for Merseyside Works should go ahead. These being:

* Impact on earnings per share

* Payback Period

* NPV of the project (Discounted Cash Flow method)

* Internal Rate of Return

Background

Victoria Chemicals is a major competitor in the world wide chemical industry and a leader in producing polypropylene. Victoria Chemicals was under pressure from investors to improve its financial performance because of the accumulation of the firms’ common shares by corporate raider, Sir David Benjamin. Earnings had fallen to 180 pence per share at the end of 2007 from around 250 pence per share at the end of 2007.

Polypropylene can be used for a wide variety of products, known for its strength and...

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