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case 22 Victoria chemicalsthis is and excel spread sheet that explains the case study of victoria chemicals merseyside project.
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Exhibit 2VICTORIA CHEMICALS (A)
Frank Greystock's DCF Analysis of Merseyside Project(financial values in millions of British pounds)
AssumptionsOld Annual Output in tons 250000 Discount Rate 10.00%Out Gain/Original Output 7.00% Tax Rate 30.00%New Annual Output in tons 267500 Investment 12000000 2000000Price Per ton 675 Depreciable Life 15 10Inflation Rate 0 Salvage Value 0 0Gross Margin 12.50% WIP Inventory/Cost of goods 3.00%Old Gross Margin 11.50% Months down 1.5Earning Savings Prelim. Engineering cost
1-5years 1.25% Overhead/Investments 6-10years 0.75%
11-15years 0.00%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15Year Now 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
1. Estimate of Incremental Gross ProfitNew Output (tons) 267,500 267,500 267,500 267,500 267,500 267,500 267,500 267,500 267,500 267,500 267,500 267,500 267,500 267,500 267,500 Lost Output--Construction (33,438)New Sales (Millions) 157.99 180.56 180.56 180.56 180.56 180.56 180.56 180.56 180.56 180.56 180.56 180.56 180.56 180.56 180.56 New Gross Margin 13.8% 13.8% 13.8% 13.8% 13.8% 13.3% 13.3% 13.3% 13.3% 13.3% 12.5% 12.5% 12.5% 12.5% 12.5%New Gross Profit 21.72 24.83 24.83 24.83 24.83 23.92 23.92 23.92 23.92 23.92 22.57 22.57 22.57 22.57 22.57
Old Output 250,000 250,000 250,000 250,000 250,000 250,000 250,000 250,000 250,000 250,000 250,000 250,000 250,000 250,000 250,000 Old Sales (Millions) 168.75 168.75 168.75 168.75 168.75 168.75 168.75 168.75 168.75 168.75 168.75 168.75 168.75 168.75 168.75 Old Gross Profit 19.41 19.41 19.41 19.41 19.41 19.41 19.41 19.41 19.41 19.41 19.41 19.41 19.41 19.41 19.41 Incremental Gross Profit 2.32 5.42 5.42 5.42 5.42 4.52 4.52 4.52 4.52 4.52 3.16 3.16 3.16 3.16 3.16
2. Estimate of Incremental WIP inventoryNew WIP inventory 4.67 4.67 4.67 4.67 4.67 4.70 4.70 4.70 4.70 4.70 4.74 4.74 4.74 4.74 4.74 Old WIP inventory 4.48 4.48 4.48 4.48 4.48 4.48 4.48 4.48 4.48 4.48 4.48 4.48 4.48 4.48 4.48 Incremental WIP inventory 0.19 0.19 0.19 0.19 0.19 0.22 0.22 0.22 0.22 0.22 0.26 0.26 0.26 0.26 0.26
3. Estimate of Incremental DepreciationNew Depreciation 1.60 1.39 1.20 1.04 0.90 0.78 0.68 0.59 0.51 0.44 0.57 0.57 0.57 0.57 0.57 More Depreciation 0.400 0.320 0.256 0.205 0.164 0.131 0.105 0.084 0.17 0.17
4. Overhead 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 5. Prelim. Engineering Costs (Sunk Cost) 0.00 Pretax Incremental Profit 0.72 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 6. Cash Flow Adjustments Less Capital Expenditures 12.00 2.00 Add back Depreciation 1.60 1.39 1.20 1.44 1.22 1.04 0.88 0.75 0.64 0.55 0.66 0.74 0.74 0.57 0.57 Less Added WIP inventory -0.19 0.00 0.00 0.00 0.00 0.03 0.00 0.00 0.00 0.00 0.04 0.00 0.00 0.00 0.00 7. Free Cash Flow -12.00 1.91 4.21 4.16 2.23 4.16 3.50 3.43 3.39 3.35 3.33 2.45 2.44 2.44 2.39 2.39
NPV = 12.01IRR = 25.79% Two way data table
Price 12.01 $ 500 $ 525 $ 550 $ 575 $ 600 $ 625 $ 650 $ 675
IRR 25000 25.79% 50000
25000 75000 50000 100000 75000 Units 125000
100000 150000 125000 175000 150000 200000 175000 225000 200000 250000 225000 275000 250000275000
Exhibit 2VICTORIA CHEMICALS (A)
Frank Greystock's DCF Analysis of Merseyside Project(financial values in millions of British pounds)
AssumptionsNew Annual OutputAnnual Output (metric tons) 250,000 Discount rate 10.0%Output Gain/Original Output 7.0% Tax Rate 30%Price/ton (pounds sterling) 675 Investment Outlay (mill.) 12.0Inflation Rate (prices and costs) 0.0% Depreciable Life (years) 15Gross Margin (ex. Deprec.) 12.50% Salvage Value 0Old Gross Margin 11.5% WIP Inventory/Cost of Goods 3.0% Energy Savings/Sales Yr. 1-5 1.25% Months Downtime, Construction 1.5
Yr. 6-10 0.75% Preliminary Engineering Costs 0.5Yr. 11-15 0.0% Overhead/Investment 3.5%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15Year Now 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
1. Estimate of Incremental Gross ProfitNew Output (tons) 267,500 267,500 267,500 267,500 267,500 267,500 267,500 267,500 267,500 267,500 267,500 267,500 267,500 267,500 267,500 Lost Output--Construction (33,438)New Sales (Millions) 157.99 180.56 180.56 180.56 180.56 180.56 180.56 180.56 180.56 180.56 180.56 180.56 180.56 180.56 180.56 New Gross Margin 13.8% 13.8% 13.8% 13.8% 13.8% 13.3% 13.3% 13.3% 13.3% 13.3% 12.5% 12.5% 12.5% 12.5% 12.5%New Gross Profit 21.72 24.83 24.83 24.83 24.83 23.92 23.92 23.92 23.92 23.92 22.57 22.57 22.57 22.57 22.57
Old Output 250,000 250,000 250,000 250,000 250,000 250,000 250,000 250,000 250,000 250,000 250,000 250,000 250,000 250,000 250,000 Old Sales 168.75 168.75 168.75 168.75 168.75 168.75 168.75 168.75 168.75 168.75 168.75 168.75 168.75 168.75 168.75 Old Gross Profit 19.41 19.41 19.41 19.41 19.41 19.41 19.41 19.41 19.41 19.41 19.41 19.41 19.41 19.41 19.41 Incremental Gross Profit 2.32 5.42 5.42 5.42 5.42 4.52 4.52 4.52 4.52 4.52 3.16 3.16 3.16 3.16 3.16
2. Estimate of Incremental WIP inventoryNew WIP inventory 4.67 4.67 4.67 4.67 4.67 4.70 4.70 4.70 4.70 4.70 4.74 4.74 4.74 4.74 4.74 Old WIP inventory 4.48 4.48 4.48 4.48 4.48 4.48 4.48 4.48 4.48 4.48 4.48 4.48 4.48 4.48 4.48 Incremental WIP inventory 0.19 0.19 0.19 0.19 0.19 0.22 0.22 0.22 0.22 0.22 0.26 0.26 0.26 0.26 0.26
3. Estimate of Incremental DepreciationNew Depreciation 1.60 1.39 1.20 1.04 0.90 0.78 0.68 0.59 0.51 0.44 0.57 0.57 0.57 0.57 0.57
4. Overhead 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42 5. Prelim. Engineering Costs 0.50 Pretax Incremental Profit -0.20 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 6. Cash Flow Adjustments Less Capital Expenditu -12.00 Add back Depreciation 1.60 1.39 1.20 1.04 0.90 0.78 0.68 0.59 0.51 0.44 0.57 0.57 0.57 0.57 0.57 Less Added WIP inventory -0.19 0.00 0.00 0.00 0.00 -0.03 0.00 0.00 0.00 0.00 -0.04 0.00 0.00 0.00 0.00 7. Free Cash Flow -12.00 1.27 3.92 3.86 3.81 3.77 3.08 3.07 3.05 3.02 3.00 2.05 2.09 2.09 2.09 2.09
NPV = 10.45IRR = 24.04%
