Diamond Chemicals

Also, there are some concerns that if Merseyside would undergo renovations and is able to produce polypropylene cheaper than our sister plant at Rotterdam, then cannibalization would occur. We are not so sure that since we are in different geographical locations and service different areas that cannibalization would occur. But, if a problem would arise and cannibalization is suspected, Victoria Chemicals can enact a price averaging policy for both plants. Although Merseyside may be able to produce and sell polypropylene cheaper than Rotterdam if we average the sales price and have both plants sell at the same price it would alleviate this issue.

The investment requested is £12 million. Strategic and operating benefits were summarized in our previous memo to you. We have made, however, some changes to our investment analyses, which appear below.

The business plan is intended solely for informational purposes to assist you with a due-diligence investigation of this project. The information contained herein is believed to be reliable, but the management team makes no representations or warranties with respect to this information. The financial projects that are part of this plan represent estimates based on extensive research and on assumptions considered reasonable, but they are of course, not guaranteed. The contents of this plan are confidential and are not to be reproduced without express written consent.

The Merseyside project clearly provides a superior return to the Rotterdam project based on the profit, cash flow and payback criteria. In addition, the positive net

The purpose is to assess the likelihood of a particular solution option's achieving the benefits outlined in the Business Case. The Feasibility Study will also investigate whether the forecast costs are reasonable, the solution is achievable, the risks are acceptable and/or any likely issues are avoidable.

Overall, we have decided that the Merseyside project should be accepted based on the achievement of Diamond Chemicals decision criteria. The project produces a positive NPV of €6.07, holds an IRR greater than their cost of capital at 21.4%, has a payback period less than 6 years at 5.71 years, and adds to earnings per share by generating an extra £.0203 per share. This project satisfies all 4 decision criteria requirements, making Morris’s choice easy in deciding to continue funding the project. Lucy Morris and Diamond Chemicals should go forward with the Merseyside project.

In this memo I will be making a recommendation for or against the Merseyside Project. With the help of a few questions that guide my memo, I will be able to determine whether or not to continue funding for the Merseyside Project. This memo will include an exhibit that will show an analysis of the Merseyside Project including the NPV and the IRR. In the DCF analysis that was provided in the case I have made a few changes to it and that will be presented later in my memo. First I will like to talk about how Diamond Chemicals evaluate its capital expenditure proposals.

• Will Need a New Tank Car to anticipated growth of the firm in other

The company owns two plants in Europe, one being Merseyside Works, England and Rotterdam Facility, Holland. Both plants were built in 1967 and are identical in scale and design. James Fawn, the Vice President and Manager of Intermediate Chemicals Group, is in charge of both plants.

This analysis is done assuming the benefits accrued in the year 2050. The costs are evaluated from the year 2011 – the proposed time of starting the project, while the benefits are calculated from the year 2020 – the expected time of launching the project. The estimated streams of benefits and costs occurring each year between 2011 and 2050 were discounted to their present value and summarized to calculate the benefit cost ratio.

The diamond cartel has been in existence for over a hundred years. (Spar: 2006) It has faced many issues in order to survive and prosper. (Kretschmer: 1998) Rhodes’ method was sufficient during the early 1900s. (Spar:2006) By 1930, the price of diamonds had fallen and the war was looming; Europeans were not interested in buying diamonds. (Epstein: 1982) It changed ownership to the Oppenheimers around about the Great Depression. Thus began the exploitive marketing tactics of the 20th century. (Epstein: 1982)

The project would result in a negative NPV since the EPC market is small. Tewitt claims this negative NPV would be offset by Greystock’s renovation plan. The committee rejected the plan based on economic reasons. In my opinion, Tewitt’s plan is a waste of money to spend in something that holds a small part of the market rather, the money should be spent on something that have a high impact on the market. Also, I have my suspicions about Tewitt’s plan, mainly because of his comment to Greystock and Morris after the committee rejection. In that comment “ in a hushed voice” he told Morris and Greystock that their anuual bonuses are begged to the size of this operation. This makes me think that Tewitt’s plan has a self-interest tied to it, which presents an obvious agency problem. Therefore, I strongly reject his proposal.

Do you endorse Eustace’s analysis of the project at Rotterdam? How would you improve on it?

With the fact the Diamonds are made by the rock cycle then it affects where we can find them. We can see this from the fact that certain areas in the world have certain attributes that let diamonds be able to form. Crain found that diamonds may be spat out in the volcanic smoke that is released during an eruption. We can find them with the gravel that came out as well with the volcanic

* Diamond is the strongest natural mineral known by a man. It is a crystalline form of carbon.