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    Case 22 Victoria Chemicals PLC A

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    riders29
    Frank Greystock conducted a DCF analysis of a proposed chemical project in Merseyside. The analysis estimates that the project will generate incremental annual gross profits ranging from £0.19 million in year 1 to £5.42 million between years 7-15. It projects positive free cash flows each year after an initial capital expenditure of £12 million in year 1, resulting in an NPV of £10.45 million and an IRR of 24.04%. Key assumptions include an output increase of 7% annually and a price per ton of £675.

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    Case 22 Victoria Chemicals PLC A

    Uploaded by

    riders29
    314 views2 pages
    Frank Greystock conducted a DCF analysis of a proposed chemical project in Merseyside. The analysis estimates that the project will generate incremental annual gross profits ranging from £0.19 million in year 1 to £5.42 million between years 7-15. It projects positive free cash flows each year after an initial capital expenditure of £12 million in year 1, resulting in an NPV of £10.45 million and an IRR of 24.04%. Key assumptions include an output increase of 7% annually and a price per ton of £675.

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    Victoria case

    Original Title

    188437221 Case 22 Victoria Chemicals Plc A

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    Frank Greystock conducted a DCF analysis of a proposed chemical project in Merseyside. The analysis estimates that the project will generate incremental annual gross profits ranging from £0.19 million in year 1 to £5.42 million between years 7-15. It projects positive free cash flows each year after an initial capital expenditure of £12 million in year 1, resulting in an NPV of £10.45 million and an IRR of 24.04%. Key assumptions include an output increase of 7% annually and a price per ton of £675.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    314 views2 pages

    Case 22 Victoria Chemicals PLC A

    Uploaded by

    riders29
    Frank Greystock conducted a DCF analysis of a proposed chemical project in Merseyside. The analysis estimates that the project will generate incremental annual gross profits ranging from £0.19 million in year 1 to £5.42 million between years 7-15. It projects positive free cash flows each year after an initial capital expenditure of £12 million in year 1, resulting in an NPV of £10.45 million and an IRR of 24.04%. Key assumptions include an output increase of 7% annually and a price per ton of £675.

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    of 2

    Exh ib it 2

    VICTORIA CHEMICALS (A)


    Fran k Greysto ck's DCF An alysis o f Merseysid e Pro ject

    (financial values in millions of British pounds)


    Assu m p tio n s
    Old Annual Output in tons
    Out Gain/Original Output

    250000
    7.00%
    267500
    675
    0
    12.50%
    11.50%

    New Annual Output in tons


    Price Per ton
    Inflation Rate
    Gross Margin
    Old Gross Margin
    Earning Savings
    1-5years
    6-10years
    11-15years

    Discount Rate
    Tax Rate
    Investment
    Depreciable Life
    Salvage Value
    WIP Inventory/Cost of goods
    Months down
    Prelim. Engineering cost
    Overhead/Investments

    1.25%
    0.75%
    0.00%

    Year

    1
    2008

    Now

    1. Estimate of Incremental Gross Profit


    New Output (tons)
    Lost Output--Construction
    New Sales (Millions)
    New Gross Margin
    New Gross Profit
    Old Output
    Old Sales (Millions)
    Old Gross Profit
    Incremental Gross Profit
    2. Estimate of Incremental WIP inventory
    New WIP inventory
    Old WIP inventory
    Incremental WIP inventory
    3. Estimate of Incremental Depreciation
    New Depreciation
    More Depreciation
    4. Overhead
    5. Prelim. Engineering Costs (Sunk Cost)
    Pretax Incremental Profit
    6. Cash Flow Adjustments
    Less Capital Expenditures
    Add back Depreciation
    Less Added WIP inventory
    7. Free Cash Flow

    -12.00

    NPV =
    IRR =

    12.01
    25.79%

    2
    2009

    3
    2010

    5
    2012

    6
    2013

    4
    2011

    250,000
    168.75
    19.41
    4.52

    250,000
    168.75
    19.41
    4.52

    250,000
    168.75
    19.41
    3.16

    250,000
    168.75
    19.41
    3.16

    250,000
    168.75
    19.41
    3.16

    250,000
    168.75
    19.41
    3.16

    250,000
    168.75
    19.41
    3.16

    4.67
    4.48
    0.19

    4.67
    4.48
    0.19

    4.67
    4.48
    0.19

    4.67
    4.48
    0.19

    4.67
    4.48
    0.19

    4.70
    4.48
    0.22

    4.70
    4.48
    0.22

    4.70
    4.48
    0.22

    4.70
    4.48
    0.22

    4.70
    4.48
    0.22

    4.74
    4.48
    0.26

    4.74
    4.48
    0.26

    4.74
    4.48
    0.26

    4.74
    4.48
    0.26

    4.74
    4.48
    0.26

    1.60

    1.39

    1.20
    0.00

    0.90
    0.320
    0.00

    0.78
    0.256
    0.00

    0.68
    0.205
    0.00

    0.59
    0.164
    0.00

    0.51
    0.131
    0.00

    0.44
    0.105
    0.00

    0.57
    0.084
    0.00

    0.57
    0.17
    0.00

    0.57
    0.17
    0.00

    0.57

    0.00

    1.04
    0.400
    0.00

    0.57

    0.00
    0.00
    0.72

    0.00

    0.00

    4.03

    4.22

    3.98

    4.20

    3.48

    3.64

    3.77

    3.88

    3.97

    2.51

    2.42

    2.42

    2.59

    2.59

    1.20
    0.00
    4.16

    2.00
    1.44
    0.00
    2.23

    1.22
    0.00
    4.16

    1.04
    0.03
    3.50

    0.88
    0.00
    3.43

    0.75
    0.00
    3.39

    0.64
    0.00
    3.35

    0.55
    0.00
    3.33

    0.66
    0.04
    2.45

    0.74
    0.00
    2.44

    0.74
    0.00
    2.44

    0.57
    0.00
    2.39

    0.57
    0.00
    2.39

    1.39
    0.00
    4.21

    IRR
    25.79%
    -7.20%
    -1.85%
    2.48%
    6.26%
    9.67%
    12.83%
    15.81%
    18.65%
    21.37%
    24.00%
    26.55%

    Units

    12.01 $
    25000
    50000
    75000
    100000
    125000
    150000
    175000
    200000
    225000
    250000
    275000

    500 $
    (9.35)
    (7.76)
    (6.17)
    (4.58)
    (3.00)
    (1.41)
    0.18
    1.77
    3.36
    4.95
    6.54

    525
    (9.27)
    (7.60)
    (5.94)
    (4.27)
    (2.60)
    (0.93)
    0.74
    2.40
    4.07
    5.74
    7.41

    Two way data table


    Price
    $
    550 $
    575 $
    (9.19)
    (9.11)
    (7.44)
    (7.29)
    (5.70)
    (5.46)
    (3.95)
    (3.63)
    (2.20)
    (1.80)
    (0.45)
    0.02
    1.29
    1.85
    3.04
    3.68
    4.79
    5.50
    6.54
    7.33
    8.28
    9.16

    600 $
    (9.03)
    (7.13)
    (5.22)
    (3.31)
    (1.41)
    0.50
    2.40
    4.31
    6.22
    8.12
    10.03

    180.56
    13.3%
    23.92

    625 $
    (8.95)
    (6.97)
    (4.98)
    (3.00)
    (1.01)
    0.98
    2.96
    4.95
    6.93
    8.92
    10.90

    180.56
    12.5%
    22.57

    650 $
    (8.87)
    (6.81)
    (4.74)
    (2.68)
    (0.61)
    1.45
    3.52
    5.58
    7.65
    9.71
    11.78

    267,500
    180.56
    12.5%
    22.57

    675
    (8.79)
    (6.65)
    (4.51)
    (2.36)
    (0.22)
    1.93
    4.07
    6.22
    8.36
    10.51
    12.65

    267,500
    180.56
    12.5%
    22.57

    267,500

    15
    2022

    250,000
    168.75
    19.41
    4.52

    180.56
    13.3%
    23.92

    267,500

    14
    2021

    250,000
    168.75
    19.41
    4.52

    180.56
    13.3%
    23.92

    267,500

    13
    2020

    250,000
    168.75
    19.41
    4.52

    180.56
    13.3%
    23.92

    267,500

    12
    2019

    250,000
    168.75
    19.41
    5.42

    180.56
    13.3%
    23.92

    267,500

    11
    2018

    250,000
    168.75
    19.41
    5.42

    180.56
    13.8%
    24.83

    267,500

    10
    2017

    250,000
    168.75
    19.41
    5.42

    180.56
    13.8%
    24.83

    267,500

    9
    2016

    250,000
    168.75
    19.41
    5.42

    1.60
    -0.19
    1.91

    267,500

    8
    2015

    250,000
    168.75
    19.41
    2.32

    180.56
    13.8%
    24.83

    267,500

    7
    2014

    267,500

    12.00

    25000
    50000
    75000
    100000
    125000
    150000
    175000
    200000
    225000
    250000
    275000

    2000000
    10
    0

    267,500
    (33,438)
    157.99
    13.8%
    21.72

    180.56
    13.8%
    24.83

    267,500

    10.00%
    30.00%
    12000000
    15
    0
    3.00%
    1.5

    180.56
    12.5%
    22.57

    267,500
    180.56
    12.5%
    22.57

    Exhibit 2
    VICTORIA CHEMICALS (A)
    Frank Greystock's DCF Analysis of Merseyside Project
    (financial values in millions of British pounds)
    Assumptions
    New Annual Output
    Annual Output (metric tons)
    Output Gain/Original Output
    Price/ton (pounds sterling)
    Inflation Rate (prices and costs)
    Gross Margin (ex. Deprec.)
    Old Gross Margin
    Energy Savings/Sales
    Yr. 1-5
    Yr. 6-10
    Yr. 11-15

    250,000
    7.0%
    675
    0.0%
    12.50%
    11.5%
    1.25%
    0.75%
    0.0%

    1
    Year
    Now
    2008
    1. Estimate of Incremental Gross Profit
    New Output (tons)
    267,500
    Lost Output--Construction
    (33,438)
    New Sales (Millions)
    157.99
    New Gross Margin
    13.8%
    New Gross Profit
    21.72
    Old Output
    Old Sales
    Old Gross Profit
    Incremental Gross Profit

    250,000
    168.75
    19.41
    2.32

    2. Estimate of Incremental WIP inventory


    New WIP inventory
    4.67
    Old WIP inventory
    4.48
    Incremental WIP inventory
    0.19
    3. Estimate of Incremental Depreciation
    New Depreciation
    1.60
    4. Overhead
    0.42
    5. Prelim. Engineering Costs
    0.50
    Pretax Incremental Profit
    -0.20
    6. Cash Flow Adjustments
    Less Capital Expenditures-12.00
    Add back Depreciation
    1.60
    Less Added WIP inventory
    -0.19
    7. Free Cash Flow
    -12.00
    1.27
    NPV =
    IRR =

    10.45
    24.04%

    Discount rate
    Tax Rate
    Investment Outlay (mill.)
    Depreciable Life (years)
    Salvage Value
    WIP Inventory/Cost of Goods
    Months Downtime, Construction
    Preliminary Engineering Costs
    Overhead/Investment
    2
    2009
    267,500
    180.56
    13.8%
    24.83

    3
    2010
    267,500
    180.56
    13.8%
    24.83

    4
    2011
    267,500
    180.56
    13.8%
    24.83

    5
    2012
    267,500
    180.56
    13.8%
    24.83

    10.0%
    30%
    12.0
    15
    0
    3.0%
    1.5
    0.5
    3.5%
    6
    2013
    267,500
    180.56
    13.3%
    23.92

    7
    2014
    267,500
    180.56
    13.3%
    23.92

    8
    2015
    267,500
    180.56
    13.3%
    23.92

    9
    2016
    267,500
    180.56
    13.3%
    23.92

    10
    2017
    267,500
    180.56
    13.3%
    23.92

    11
    2018
    267,500
    180.56
    12.5%
    22.57

    12
    2019
    267,500
    180.56
    12.5%
    22.57

    13
    2020
    267,500
    180.56
    12.5%
    22.57

    14
    2021
    267,500
    180.56
    12.5%
    22.57

    15
    2022
    267,500
    180.56
    12.5%
    22.57

    250,000
    168.75
    19.41
    5.42

    250,000
    168.75
    19.41
    5.42

    250,000
    168.75
    19.41
    5.42

    250,000
    168.75
    19.41
    5.42

    250,000
    168.75
    19.41
    4.52

    250,000
    168.75
    19.41
    4.52

    250,000
    168.75
    19.41
    4.52

    250,000
    168.75
    19.41
    4.52

    250,000
    168.75
    19.41
    4.52

    250,000
    168.75
    19.41
    3.16

    250,000
    168.75
    19.41
    3.16

    250,000
    168.75
    19.41
    3.16

    250,000
    168.75
    19.41
    3.16

    250,000
    168.75
    19.41
    3.16

    4.67
    4.48
    0.19

    4.67
    4.48
    0.19

    4.67
    4.48
    0.19

    4.67
    4.48
    0.19

    4.70
    4.48
    0.22

    4.70
    4.48
    0.22

    4.70
    4.48
    0.22

    4.70
    4.48
    0.22

    4.70
    4.48
    0.22

    4.74
    4.48
    0.26

    4.74
    4.48
    0.26

    4.74
    4.48
    0.26

    4.74
    4.48
    0.26

    4.74
    4.48
    0.26

    1.39
    0.42

    1.20
    0.42

    1.04
    0.42

    0.90
    0.42

    0.78
    0.42

    0.68
    0.42

    0.59
    0.42

    0.51
    0.42

    0.44
    0.42

    0.57
    0.42

    0.57
    0.42

    0.57
    0.42

    0.57
    0.42

    0.57
    0.42

    3.61

    3.80

    3.96

    4.10

    3.32

    3.42

    3.51

    3.59

    3.66

    2.17

    2.17

    2.17

    2.17

    2.17

    1.39
    0.00
    3.92

    1.20
    0.00
    3.86

    1.04
    0.00
    3.81

    0.90
    0.00
    3.77

    0.78
    -0.03
    3.08

    0.68
    0.00
    3.07

    0.59
    0.00
    3.05

    0.51
    0.00
    3.02

    0.44
    0.00
    3.00

    0.57
    -0.04
    2.05

    0.57
    0.00
    2.09

    0.57
    0.00
    2.09

    0.57
    0.00
    2.09

    0.57
    0.00
    2.09

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