Victoria Chemicals plc

(B):
The Merseyside and

Andrean Darma Lukita

Bramantya Harimurti
Ila Nurhidayati
Nabila Hilmy Zhafira
Soraya Inayah Fidran

Corporate project
plan

Corporate Plan overview

Current Condition

The Merseyside Project

NPV & IRR

Issues from other

departements
1.Transport division
2.Sales department
3.Assistant plant manager
4.Treasury staf

Changes to DFC
Model

Approachment

Merseyside

Rotterdam

NPV

12.45m

15.5m

IRR

24%

18.0%

PBP

3.78 years

7.95 years

0.022

0.048

Growth in EPS

The Merseyside project had a higher IRR and a much lower payback period. Rotterdam
had a higher NPV by almost half a million pounds, and a larger growth in EPS
09/29/15

Original DCF

Consider new information

from other department

Transport Division

09/29/15

EFFECT ON DCF
NPV

= 9.09

IRR

= 22.29%

PBP

= 4 tahun

Impact on EPS

= 0.03

Conclusion : Project still feasible

09/29/15

Shutdown Time

09/29/15

ICG Sales and Marketing

Department
Tidak dipertimbangkan dengan alasan :
Sales Cannibalization adalah short-term consideration
Merseyside project dilaksanakan dalam jangka panjang
Selama masa proyeksi (15 tahun) market size produk
poliprone diharapkan meningkat sehingga tidak terjadi idle
capacity

09/29/15

Assistant Plan Manager

09/29/15

EFFECT ON DCF
NPV

: 9.72

IRR

: 22.70%

PBP

: 3 tahun 2 bulan

Impact on EPS : 0.03

Project still feasible

09/29/15

Treasury discount rate changes

from 10% into 7%

09/29/15

EFFECT ON DCF
NPV

: 14.36

IRR

: 24.73%

PBP

: 3 tahun 2 bulan

Impact on EPS : 0.03

09/29/15

Tying all together

09/29/15

Solutions
There is a conflict existing between these two mutually exclusive projects. Therefore, we will choose the best project
based on the best criterion, which is NPV because NPV assumes reinvestment at the cost of capital and that is
generally the best assumption. Hence, the Rotterdam project should be chosen.
Alternative Solutions
We believe the discount rate should be adjusted. We used the 7% discount rate which was deemed more accurate.
We also accounted for a 3% inflation premium.
Implementation of Alternatives
The expected Net Present value of the Rotterdam project using the revised discount rate and premium is GBP
27.79million. NPV gives explicit consideration to the time value of money and is a good method to evaluate the
project because it assesses all the cost involved. When the NPV of the project is greater than zero, then the firm can
believe that this is an acceptable project. This new NPV shows that the
project is a great investment. If they were to account for full erosion of Rotterdams
business volume, there would still be a positive NPV for Merseyside and above the hurdle rate. The new IRR is
10.5% and this holds the project at an 3.5% higher rate than minimally expected for a project. This IRR represents
the project in a positive light.

09/29/15

Conclusion
James Fawn did have an extremely difficult decision to make.
Although the Merseyside project passed all four criteria for further
consideration, it was NPV
which ultimately prevailed as the superior criterion. Therefore,
Fawn should select the Eustace proposal.

Thankyo
u