Introduction

Victoria Chemicals PLC (B)

This spreadsheet supports STUDENT analysis of the case, "Victoria

Chemicals PLC (B)" (Case 23).

Copyright (C) 2008 by the Trustees of the University of Virginia Darden School Foundation.

Page 1

Introduction

Foundation.

Page 2

Exhibit 1
VICTORIA CHEMICALS (B)
ANALYSIS OF ROTTERDAM PROJECT
(financial values in millions of British pounds)
Assumptions
Annual Output (metric tons)
Output Gain Per Year/Prior Year
Maximum Possible Output
Price/ton (pounds sterling)
Inflation (prices and costs)
Gross Margin Growth Rate/Year
Maximum Possible Gross Margin
Gross Margin
Tax Rate
Investment Outlay (millions)

Now
2008
2009
2010

250,000
2.0%
267,500
675
0.0%
0.60%
15.0%
11.5%
30.0%
3.5
5
1
1

Discount rate
Depreciable Life (years)
Overhead/Investment
Salvage Value
WIP Inventory/Cost of Goods Sold
Terminal Value of Right-of-Way
Months Downtime, Construction

2008
2009
2010
2011

10.0%
15
0.0%
0
3.0%
40
5
4
3
0

0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
Year
Now
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
1. Estimate of Incremental Gross Profit
New Output
255,000 260,100 265,302 267,500 267,500 267,500 267,500 267,500 267,500 267,500 267,500 267,500 267,500 267,500
Lost Output--Construction
(106,250) (86,700) (66,326)
New Sales (Millions)
100.41
117.05
134.31
180.56
180.56
180.56
180.56
180.56
180.56
180.56
180.56
180.56
180.56
180.56
New Gross Margin
11.6%
11.7%
11.9%
12.2%
12.6%
13.0%
13.6%
14.3%
15.0%
15.0%
15.0%
15.0%
15.0%
15.0%
New Gross Profit
11.62
13.70
16.01
22.04
22.71
23.54
24.55
25.75
27.08
27.08
27.08
27.08
27.08
27.08
Old Output
Old Sales
Old Gross Profit
Incremental Gross Profit
2. Estimate of Incremental Depreciation
Yr. 1 Outlays
Yr. 2 Outlays
Yr. 3 Outlays
Total, New Depreciation
3. Overhead
4. Pretax Incremental Profit
5. Tax Expense
6. After-tax Profit
7. Cash Flow Adjustments
Add back Depreciation
Less added WIP inventory
Capital Spending
3.50
Terminal Value, land
8. Free Cash Flow
(3.50)
DCF, Rotterdam =
IRR, Rotterdam =

250,000 250,000
168.75
168.75
19.41
19.41
(7.79)
(5.70)
0.67

0.58
0.14

0.67
0
(8.46)
(2.54)
(5.92)

250,000 250,000
168.75
168.75
19.41
19.41
(3.40)
2.64

250,000
168.75
19.41
3.31

250,000
168.75
19.41
4.14

250,000
168.75
19.41
5.14

250,000
168.75
19.41
6.35

250,000
168.75
19.41
7.68

250,000
168.75
19.41
7.68

250,000
168.75
19.41
7.68

250,000
168.75
19.41
7.68

250,000
168.75
19.41
7.68

250,000
168.75
19.41
7.68

0.72
0
(6.42)
(1.93)
(4.50)

0.50
0.12
0.15
0.78
0
(4.17)
(1.25)
(2.92)

0.43
0.10
0.13
0.67
0
1.97
0.59
1.38

0.38
0.09
0.11
0.58
0
2.73
0.82
1.91

0.33
0.08
0.09
0.50
0
3.64
1.09
2.55

0.28
0.07
0.08
0.43
0
4.72
1.42
3.30

0.24
0.06
0.07
0.37
0
5.98
1.79
4.19

0.21
0.05
0.06
0.32
0
7.36
2.21
5.15

0.18
0.04
0.05
0.27
0
7.40
2.22
5.18

0.24
0.05
0.05
0.34
0
7.34
2.20
5.14

0.24
0.05
0.05
0.34
0
7.34
2.20
5.14

0.24
0.05
0.05
0.34
0
7.34
2.20
5.14

0.24
0.05
0.05
0.34
0
7.34
2.20
5.14

0.67
1.82
5.00

0.72
(0.44)
1.00

0.78
(0.45)
1.00

0.67
(1.21)

0.58
0.02

0.50
0.02

0.43
0.03

0.37
0.04

0.32
0.04

0.27
-

0.34
-

0.34
-

0.34
-

0.34
-

(12.07)

(4.34)

(2.70)

3.25

2.47

3.02

3.70

4.52

5.43

5.46

5.48

5.48

5.48

5.48

17,500
11.81
1.36
0.95
0.35

17,500
11.81
1.36
0.95
0.35

17,500
11.81
1.36
0.95
0.35

17,500
11.81
1.36
0.95
0.35

17,500
11.81
1.36
0.95
0.35

17,500
11.81
1.36
0.95
0.35

17,500
11.81
1.36
0.95
0.35

17,500
11.81
1.36
0.95
0.35

17,500
11.81
1.36
0.95
0.35

17,500
11.81
1.36
0.95
0.35

17,500
11.81
1.36
0.95
0.35

11.37
15.4%

9. Adjustment for erosion in Merseyside volume:

Lost Merseyside Output
Lost Merseyside Revenue
Lost Merseyside Gross Profits
Lost Gross Profits after Taxes
Change in Merseyside Inventory