Cash flow without Laminate Technology

Expected(12/31/1979) For the Years Ended December 31,

1980 1981 1982 1983
count 0 1 2 3 4
Revenues
Sales (tons) 38,507 32,000 35,000 38,000 38,000
Average price/ton $413 $415 $480 $520 $562
Sales ($000) $15,903 $13,280 $16,800 $19,760 $21,356
Manufacturing Costs
Variable: Power $6,759 $6,304 $7,735 $9,386 $10,526
Graphite 714 645 791 875 940
Salt and other 1,385 1,285 1,621 1,753 1,836
Total variable $8,858 $8,234 $10,147 $12,014 $13,302
Fixed: Labor $1,072 $1,180 $1,297 $1,427 $1,580
Maintenance 237 256 277 299 322
Other 1,107 1,154 1,148 1,179 1,113
Total fixed $2,416 $2,590 $2,722 $2,905 $3,015
Total Manufacturing Costs $11,274 $10,824 $12,869 $14,919 $16,317
Other Charges
Selling $204 $112 $125 $138 $152
R&D $429 451 478 508 543
Depreciation $399 $1,060 $1,110 $1,160 $1,210
Total $1,032 $1,623 $1,713 $1,806 $1,905
Operating Profit(EBIT) $3,597 $833 $2,218 $3,035 $3,134
Operating Profit after tax( $1,870 $433 $1,153 $1,578 $1,630
EBIAT +Depreciation $2,269 $1,493 $2,263 $2,738 $2,840
PP&E $10,600 $10,025 $9,440 $8,840 $8,230
Capital Expenditure $449 $485 $525 $560 $600
Accounts Receivable $1,622 $1,328 $1,680 $1,976 $2,136
Inventories $651 $598 $756 $889 $961
Account Payable $873 $730 $924 $1,087 $1,175
Working Capital $1,400 $1,196 $1,512 $1,778 $1,922
Change in Working Capital -$19 -$204 $316 $266 $144
Cash flows -$12,000 $1,212 $1,422 $1,912 $2,096
Discount factor 1.00 1.15 1.33 1.54 1.78
Discounted Cash flow -$12,000.00 $1,050 $1,066 $1,241 $1,178
Total NPV -$5,455.70
ember 31,
1984 1985 1986 1987 1988 1989 Tax rate 48%
5 6 7 8 9 10 Sales Growth 8%
WACC 15.49%
38,000 38,000 38,000 38,000 38,000 38,000 Capex $600
$606 $654.48 $706.84 $763.39 $824.46 $890.41
$23,028 $24,870 $26,860 $29,009 $31,329 $33,836 WACC 0.15

$11,780 $13,194 $14,777 $16,550 $18,536 $20,760

992 1061 1136 1215 1300 1391
1,956 2,171 2,410 2,675 2,969 3,296
$14,728 $16,426 $18,323 $20,440 $22,806 $25,448
$1,738 $1,912 $2,103 $2,313 $2,545 $2,799
354 384 416 451 489 530
1,153 1,153 1,153 1,153 1,153 1,153
$3,245 $3,672 $3,917 $4,186 $4,482 $4,482
$17,973 $22,240 $24,627 $27,288 $29,930 $29,930

$168 $185 $203 $224 $246 $271

591 621 652 684 718 754
$1,270 $1,330 $1,390 $1,450 $1,510 $1,570
$2,029 $2,135 $2,245 $2,358 $2,474 $2,595
$3,026 $495.14 -$11.77 -$636.74 -$1,074.60 $1,311.24
$1,574 $257 -$6 -$331 -$559 $682
$2,844 $1,587 $1,384 $1,119 $951 $2,252
$7,560 $6,830 $6,040 $5,190 $4,280 $3,310
$600 $600 $600 $600 $600 $600 Year 1978
$2,303 $2,501 $2,716 $2,950 $3,203 $3,479 $1,575
$1,036 $1,144 $1,263 $1,394 $1,539 $1,699 $639
$1,267 $1,381 $1,505 $1,641 $1,788 $1,949 $795
$2,072 $2,264 $2,474 $2,703 $2,954 $3,229 $1,419
$150 $192 $210 $229 $251 $275
$2,094 $796 $574 $289 $100 $1,377
2.05 2.37 2.74 3.16 3.66 4.22
$1,019 $335 $210 $91 $27 $326
Cash flow with Laminate Technology
Expected
12/31 1979 For the Years Ended December 31,
1980 1981 1982 1983
Count 0 1 2 3 4
Sales (tons) 38,507 32,000 35,000 38,000 38,000
Average price/ton $413 $415 $480 $520 $562
Sales ($000) $15,903 $13,280 $16,800 $19,760 $21,356
Variable: Power $6,759 $6,304 $7,735 $9,386 $10,526
Decrease in Power cost $5,043 $6,188 $7,509 $8,421
Graphite 714 0 0 0 0
Salt and other 1,385 1,285 1,621 1,753 1,836
Total variable $8,858 $6,328 $7,809 $9,262 $10,257
Fixed: Labor $1,072 $1,297 $1,427 $1,580
Maintenance 237 256 277 299 322
Other 1,107 1,154 1,148 1,179 1,113
Total fixed $2,416 $1,410 $2,722 $2,905 $3,015
Total Manufacturing Costs $11,274 $7,738 $10,531 $12,167 $13,272
Other Charges
Selling $204 $112 $125 $138 $152
R&D $429 451 478 508 543
Depreciation+straightlinedepreciation $399 $1,285 $1,335 $1,385 $1,435
Total $1,032 $1,848 $1,938 $2,031 $2,130
Operating Profit(EBIT) $3,597 $3,694 $4,331 $5,562 $5,954
Operating Profit after tax(EBIAT) $1,870 $1,921 $2,252 $2,892 $3,096
EBIAT +Depreciation $2,269 $3,206 $3,587 $4,277 $4,531
PP&E $10,600 $10,025 $9,440 $8,840 $8,230
Capital Expenditure $449 $2,960 $750 $785 $825
Accounts Receivable $1,622 $1,328 $1,680 $1,976 $2,136
Inventories $651 $598 $756 $889 $961
Account Payable $873 $730 $924 $1,087 $1,175
Working Capital $1,400 $1,196 $1,512 $1,778 $1,922
Change in Working Capital -$19 -$204 $316 $266 $144
Cash flows -$12,000 $450 $2,521 $3,226 $3,562
Discount factor 1 1.1549 1.333794 1.5403987 1.7790065
Discounted Cash flow -$12,000 $389 $1,890 $2,094 $2,002
Total NPV -$2,183

Sales Growth Total NPV(000's)

8% $3,466
7% $2,838
6% $2,225
5% $1,626
4% $1,042
3% $471
2% -$86
1% -$629
0% -$1,160
-1 -$1,678
-2 -$2,183
d December 31,
1984 1985 1986 1987 1988 1989
5 6 7 8 9 10
38,000 38,000 38,000 38,000 38,000 38,000
$606 $593.88 $582.00 $570.36 $558.96 $547.78
$23,028 $22,567 $22,116 $21,674 $21,240 $20,815
$11,780 $13,193.60 $14,776.83 $16,550.05 $18,536.06 $20,760.39
$9,424 $10,555 $11,821 $13,240 $14,829 $16,608
0 0 0 0 0 0
1,956 2,171 2,410 2,675 2,969 3,296
$11,380 $12,726 $14,231 $15,915 $17,798 $19,904
$1,738 $1,912 $2,103 $2,313 $2,545 $2,799
354 384 416 451 489 530
1,153 1,153 1,153 1,153 1,153 1,153
$3,245 $3,449 $3,672 $3,917 $4,186 $4,482
$14,625 $16,175 $17,903 $19,832 $21,985 $24,386

$168 $185 $203 $224 $246 $271

591 621 652 684 718 754
$1,495 $1,780 $2,065 $2,350 $2,635 $2,920
$2,254 $2,585 $2,920 $3,258 $3,599 $3,945
$6,149 $3,808 $1,293 -$1,416 -$4,344 -$7,516
$3,197 $1,980 $672 -$736 -$2,259 -$3,908
$4,692 $3,760 $2,737 $1,614 $376 -$988
$7,560 $6,380 $4,915 $3,165 $1,130 -$1,190
$825 $600 $600 $600 $600 $600
$2,303 $2,501 $2,716 $2,950 $3,203 $3,479
$1,036 $1,144 $1,263 $1,394 $1,539 $1,699
$1,267 $1,381 $1,505 $1,641 $1,788 $1,949
$2,072 $2,264 $2,474 $2,703 $2,954 $3,229
$150 $192 $210 $229 $251 $275
$3,717 $2,968 $1,928 $784 -$475 -$1,863
2.0545745619 2.37282816 2.74037924 3.16486399 3.65510142 4.22127663
$1,809 $1,251 $703 $248 -$130 -$441
 Tax rate 48%
Sales Growth -2%
WACC 15.49%
Capex $600
Power cost decrease 30%
WACC 0.15
Laminate Investment 2250
Straight Line depreciation 225

Year 1978
$1,575
$639
$795
$1,419
Err:522
 Price Change
8%
7%
6%
5%
4%
3%
2%
1%
0%
-1%
-2%

Strengths

Entering into sodium chlorate industry improves it relationship with pulp and paper customers
Can uss existing sales network to increase the sales of collinsville plant
Diversified Chemical Company

Opportunities
Opportunities
Overall,The sales of sodium chlorate industry increase as a whole
Price Increase over last years(Positive trend)
Increase in Demand
Laminate technology will decrease the graphite and power cost
 Total NPV(000's)
$3,466
$2,838
$2,225
$1,626
$1,042
$471
-$86
-$629
-$1,160
-$1,678
-$2,183

Weekness

New player in sodium Chlorate Industry

Market is dominated by three player

Threats
Profit Margins can go down because of emerging competition
Capacity utilization can be decreased
Twelve existing competitors plus two new competitors
 NPV wrt Price Change
$4,000

NPV(000 USD)
$3,000
$2,838

$2,000

$1,000 $1,042

$471

$0 -$86
-4% -2% 0% 2% 4% 6% 8%
-$629
-$1,000
-$1,160

-$1,678
-$2,000
-$2,183

Price Change in %
-$3,000
Change

$3,466

$2,838

$1,042

6% 8% 10%

in %
 Given Information in Case
Average annual Prices of Sodium Chlorate Increases by 8 % between 1984 and 1989
Power cost increases by 12 % per year
Average tax rate is 48 percent

Assumptions
Sales of collinsville plant remain at 38000 between 1984 and 1989
Plant life is ten years
Plant scrap value is zero
The growth rate of graphite cost is 7 percent between 1984 and 1989
The growth rate of salt and other is 11 percent between 1984 and 1989
Labor cost increases by 11 percent annually between 1984 and 1989
Maintainence growth rate is 8.4 percent between 1984 and 1989
The fixed cost(others) remains constant between 1984 and 1989
Selling growth rate is 10 percent between 1984 and 1989
R &D growth rate is 5 percent
Capital Expenditures: $600,000 per annum after 1984
Accounts Receivable increases annually by 8.6 percent after 1984
Inventories increases annually by 10.4 percent after 1984
Account payable increases by 9 percent after 1984
Discount Factor NPV(000) USD
13% 5433
14% 4609
15.49% 3466
16% 3100
17% 2417
18% 1777
19% 1177
20% 613
21% 83
22% -416
23% -885
24% -1328
N e t P r e s e n t V a lu e in U S D 0 0 0

6000

5433 NPV Profile Curve

5000
4609

4000
3466
3000 3100

2417
2000
1777

1177
1000
613

0 83
10% 15% 20% 25% 30%
-416

-1000 -885
-1328

-2000
Discount Factor
V Profile Curve

30%
 Net Present valu
4000

NPV (000 USD)

Sales(1984NPV(in 000 USD)
38000 3466
37000 2836 3000
36000 2206
35000 1576
34000 946
2000
33000 316
32000 -314
31000 -944
30000 -1574 1000

316
0
27000 29000 31000 33000
-314

-1000 -944

-1574
Sales of Sodium Chlorate(0
-2000
Net Present value wrt sales

3466

2836

2206

1576

946

316

31000 33000 35000 37000 39000

-314

-944

les of Sodium Chlorate(000) between 1984 and 1989