The increased throughput would necessitate a one-time increase of work-in-process inventory equal in value to 3 percent of cost of goods. For engineering-efficiency projects, the contribution to net income from contemplated projects had to be positive.
The objective of the two cases is to expose students to a wide range of capital budgeting issues: The critical assessment of a capital-investment evaluation system. Therefore, the cash flows associated with the right-of-way should be separated from the rest of the Rotterdam project cash flows.
Finally, the corporate manual stipulated that overhead costs be reflected in project analyses at the rate of 3. The identification of some classic games or types of human behavior that can be counterproductive in the resource-allocation process.
Anyway, if the company starts burdening its cost-reduction projects with fictitious charges like this, we?
In an effort to enhance the operating results of the Works, the previous manager had limited capital expenditures to only the most essential. Supplemental Technical Notes At the end of this teaching note are three supplemental notes the instructor may choose to distribute to students.
Victoria chemicals frank greystock relevance of cash flows from assets that may be separable from the core project. When she assumed responsibility, she undertook a detailed review of the operations and discovered significant opportunities for improvement in polypropylene production.
Even if an allocation has to be made somewhere, it should go on the Transport Division? Unfortunately, they are also somewhat more difficult to use than the other two measures, and may not always agree, as shown in the B case analysis. This criterion was calculated as the average annual EPS contribution of the project over its entire economic life, using the number of outstanding shares at the most recent fiscal year-end as the basis for the calculation.
The focus here should be the cannibalization issue. How, if at all, does this flexibility affect the economic attractiveness of the project? Earnings per share can be easily manipulated by changes in accounting policies, and the figure ignores the investment necessary to produce earnings growth.
Accordingly, Greystock had not reflected any charge for the use of excess rolling stock in his preliminary DCF analysis, given in Exhibit 2. Her controller, Frank Greystock, was discussing a capital project that she wanted to propose to senior management.
Do you want to manage a shrinking plant? The purchase would cost GBP2 million. This option is to expire in six months.
Undertaking the Merseyside project will not necessarily trigger more headquarters expense indeed, many students will say that it is unlikely to trigger more expense. Why did the assistant plant manager offer his suggested change? This case is about the proposal by the plant manager Lucy Morris to renovate and rationalize the polypropylene production line at the Merseyside Plant at Liverpool England of Victoria Chemicals.
Specifically, the costs of the engineering study and overhead allocation have been dropped from the cash flows. In an effort to enhance the operating results of the Works, the previous manager had limited capital expenditures to only the most essential.
The identification of some classic games or types of human behavior that can be counterproductive in the resource-allocation process. The result is that the NPV of the Rotterdam project just slightly exceeds the NPV of the Merseyside project adjusted to correct for the changes suggested in the A case.
The revised estimates in Exhibit TN1 afford a focal point for the students with which to continue the analysis in the B case. The increased throughput would necessitate a one-time increase of work-in-process inventory equal in value to 3. This results in a positive NPV of This product, a variety of synthetic rubber, had been pioneered by Diamond Chemicals in the early s and was sold in bulk to European tire manufacturers.
This objective is dubious. Get Full Essay Get access to this section to get all help you need with your essay and educational issues.
Propylene was purchased from four refineries in England that produced it in the course of refining crude oil into gasoline. The identification of relevant cash flows; in particular, the treatment of: Cannibalization of the Rotterdam plant: If there were any speculation, it occurred when Diamond bought the option in the first place; now it is time to harvest a lucky profit.Exhibit 2 VICTORIA CHEMICALS (A) Frank Greystock's DCF Analysis of Merseyside Project (financial values in millions of British pounds) Assumptions.
SUMMARY Lucy Morris was plant Manager of Victoria Chemicals Merseyside Works in Liverpool, England. Her Controller Frank Greystock was discussing a capital project that Morris wanted to propose to senior management.
Diamond Chemicals PLC (A) and (B) Essay Sample. Synopsis and Objectives. These two cases present the capital investment decisions under consideration by executives of a large chemicals firm in January The A case (case 20) presents a go/no-go project evaluation regarding improvements to a polypropylene production plant.
Several objections to the project have been raised at corporate, and the initial analysis from Greystock contains errors that need to be fixed Objective: To evaluate Frank Greystock’s DCF Analysis of the Merseyside project, impacts to related departments, and overall appeal of the project to the.
Case #22 Victoria Chemicals. Synopsis and Objectives go/no-go decision 1. The identification of relevant cash flows; in particular, the treatment of: a.
sunk costs b. cash flows obtained by cannibalizing another activity within the firm c. exploitation of excess transportation capacity d. corporate overhead allocations e. cash flows of unrelated. View Lab Report - Victoria+Chemical+Exhibit+2+Feb+17 (edited file) from ACF at Lahore University of Management Sciences.
Exhibit 2 VICTORIA CHEMICALS (A) Frank Greystock's DCF Analysis of.Download