The original justification was rejected on the basis of economic reasons i. Our agricultural products include spray adjuvants, wetting agents, soil adjuvants, an organic insecticide, a growth regulator and bloat control products. They have four possibilities and they are 1 new product or market, 2 product or market extension, 3 engineering efficiency, and 4 safety or environment. The geographical area of the Rotterdam fabric is to prefer due the harbor is close and also access to the European market. Both plants were identical in scale, design, and age.
Greystock argues that a charge for loss of business for the Rotterdam plant should not be included in his analysis because he thinks cannibalization is not a charge. The industry is in a downturn. The results also prove that incase full erosion was done; the effect the investment would have on the existing investments would be negative. Finished plastic product is extruded into pellets for shipment to the customer. Cannibalization is when sales of a new product displace sales of an existing product.
The goal of the two cases is to expose students to a broad range of capital budgeting … Read more » These two cases to consider the investment decisions of managers of large chemical companies are made in January 2001. Sunk costs have been or will be paid regardless of the decision about whether or not to proceed with the project. The Proposed Project The proposal is to refurbish the. Our Industrial product range includes concrete mould release agents, truck slip products, asphalt adhesion agents, various esters of canola oil for use as formulating intermediates, and degreasers. The internal rate of return is 12.
Thus Victoria Chemicals real target rate of return is 10%. Its executive vice president James Fawn was presented with two projects to improve polypropylene output for Victoria Chemicals: one for its Merseyside plant, the other for the plant in Rotterdam. In the instance where the both projects have resulted into net present values greater than zero, the investment with a greater net present value is accepted Belli et al, 2001. Victoria Chemicals is a producer of polypropylene that has two factories in Merseyside Works and Rotterdam, Holland. In conclusion, the improvement of the Merseyside project through using capital acquired from the Rotterdam project will pose a serious challenge to the firm in terms of the profitability in the long term as depicted by declining incremental profits. The other was to use nominal terms, which we did when we included the inflation in our calculations e. It is described as the discount rate that equals the net present value of an investment to zero.
The first complication can be realized when there is a negative Cash Flow other than the initial year of the implementation of the project and dealing with a mutually exclusive project. This will result in the loss of revenue, for the days the plant is closed down. Payback for each investment — We used this method in order to see how long the time period is for our initial cash outflow of this investment to be recovered from the cash inflows. How do the two projects compare on the basis of Victoria Chemicals' investment criteria? The Transport Division and Intermediate Chemicals Group also have its own vice presidents whose pay incentives are based on the performance of the division. The positive factors that affect the Rotterdam project is that in the projects succeeds it will get an advantage over its competitors, of being the first one with the new technology, which means that the plant will get more efficient, and that will generate decreased cycle time and eliminated downtime. The Hanover-Bates has a strong balance sheet and trades on the over-the-counter market. The sunk cost is consumed no matter what.
Both factories are identical in size, age and plant-design. This is proven by the deduction made by the cannibalization effect that reduced the operating profits as projected. With the new investment in the plant the firm will be able to take business from other competitors. Proposed project: There were pressure from investors to improve financial performance because of accumulation of shares by a well-known corporate raider, Sir David Benjamin. We have decided not to calculate the use of the Japanese Technology, due to the fact that the technology is relatively new. In this case, if the cost of depreciation for the transport cars were included in the analysis it would inflate profitability and coincidentally raise their pay incentive. The report starts with a brief overview of the company and the project proposal.
Problem Which of the criteria should be viewed as the most important and useful in choosing the project? The goal of the two cases is to expose students to a broad range of capital budgeting … Read more » These two cases… Words 1354 - Pages 6. The net present value is -1. Does it have any merit? These rolling stock could not be used outside Britain because of differences in track gauge and hence Rotterdam plant needs to arrange their raw material carriage themselves. Neither you, nor the coeditors you shared it with will be able to recover it again. Vicchem has strong business relationships with all key Australian distributors of agricultural products and works with industry partners and customers in North and South America, Europe, Asia, The Middle East and Africa. These need to be consistent in matters of nominal or real rate. However, there can be a complication if two scenarios arise.
Because of resulting from the improved efficiency at the plant, Transport Division would have to increase allocation of tank cars to Merseyside. The difference in the cash flow is brought by the adjustment of the cannibalization effect that is experienced when erosion is done at the Rotterdam business to aid in improving the polypropylene line. Each proposal had the potential to increase the polypropylene output by 7 percent for their plant respectively. A security code is added protection against credit card fraud. Due to this financial slump, Lucy Morris, the… Queen Victoria Queen Victoria was born in 1819 and died in 1901. This allocation of recourses will cause Merseyside to cannibalize the sales of Rotterdam, and thus, a loss of business for the Rotterdam plant will occur. Victoria Chemicals has six tough competitors in the market for Polypropylene production, operating at various cost levels.
In the first stage, propylene gas is combined with solvent in a large pressure vessel. Morris Greystock, the controller of the Merseyside plant had notice a decline in stock price in from 250 pence per share in 2006 to 180 pence per share in 2007 and knew he had to do something. The first scenario involves the inclusion of the negative impact that is brought about by the transfer of funds to improve the Merseyside project. Cost and benefits of the capital project will be contemplated in this report along with any issues relating to the undertaking of the project. The analysis on the net present value of both the situations will be carried out to determine the impact of carrying out the erosion. When Victoria Chemicals started up in 1967 they built two plants, one in Merseyside, England and one in Rotterdam, Holland. The acceptance of an investment when using the net present value for analysis is made on the bases of net present value.