Case Brief

Case Brief Name Course Instructor Date Case Victoria Chemicals plc (A): the Merseyside project Description of the Problem Victoria Chemicals manufactures polypropylene, but at the Meyerside plant in Liverpool England, the facility is old having being constructed in 1967 and is labor intensive. As such, the need to modernize was necessary given the plant’s falling share price and faced stiff competition from other companies with better efficiency. Given the opportunities to expand operations, the case focuses on the proposed capital program to modernize the plant facilities with an initial budget of GBP 12 million. The initial capital- expenditure proposal evaluation showed that the project was viable. Besides focusing on the relevant cash flows, there was also the need to address the ethical dilemmas that arose from conflict of interest when making investment decisions. Type of analysis The DCF analysis is appropriate, but there is a need to address the concerns mentioned by the various departments. The likely cannibalization form the Rotterdam division, means that it is necessary to address whether there will cash flows during the time when there will be plant upgrade. The forecast would be more accurate by accounting for the deprecation using the double declining balance approach and not the accelerated depreciation. Overall, it is through dealing with some of assumptions made that the DCT analysis will present a clearer picture on whether the project is worthwhile. Merit and Demerits of possible solutions The DCF analysis focuses on projected cash flow depending on the information available, and the free cash flow provides a more objective measure for which to assess the viability of a project. It is easier to understand what affects the company’s value using the DCF analysis, and history of the stock price. Nonetheless, the approach has its drawbacks and it is based on assump...