Listed below are items that should be included in your project report. However, different issues have been raised by the members of different departments such as issues related to discount rates, marketing cannibalization and capital expenditures. This project is a group effort. Transport Division The transport division will need to expand its distribution of the tank autos for the Merseyside venture. Therefore, it needs to be evaluated and decided that whether diamond chemicals should go ahead with this project or not after incorporating all the assumptions.
Collateral Readings for the B Case The application of option-pricing theory to decisions involving real asset investments may be new to students. This reminder leads to the third and final barrier. Assumptions: Preliminary engineering costs: We have decided not to include this figure because we assume that its cost has already been paid out. The company owns two plants in Europe, one being Merseyside Works, England and Rotterdam Facility, Holland. Moreover, the expenses for the cannibalization have been fused into the free cash flow calculations.
The buy of the tank autos is quickened by in this way; the depreciation movement will likewise be computed, and it is connected to a before date. Plan for the A case 1. After reading the case and guidelines thoroughly, reader should go forward and start the analyses of the case. For Victoria Chemical, this was calculated with the average annual earnings per share contribution of the engineering-efficiency project over its entire economic life. This option is to expire in six months. Furthermore, the director of sales argues that this industry is facing economic downturn and this would result in oversupply of the production and as a result the management will have to shift the capacity from the Rotterdam site to Merseyside.
And its ratio with corruption and organized crimes. Compare with low-cost producer, the production cost per ton is 1. Treasury staff: The treasury staff is partly wrong. Moreover, a system that is tailored for every project may be seen as being completely arbitrary and able to be manipulated. The reasons that resource imitation is costly are historical conditions, casual ambiguity and social complexity. However, poor guide reading will lead to misunderstanding of case and failure of analyses. This case series considers the capital-investment decisions to be made by executives of a large chemicals firm in January 2008.
Merseyside Works is located in Liverpool, England, and the second plant is located in Rotterdam, Holland. In addition, it also helps to avoid activities and actions that will be harmful for the company in future, including projects and strategies. Just because it will pay itself back does not mean it will. The first scenario involves the. It will be more difficult to find new projects, but they will be safe. Therefore there must be some resources and capabilities in an organization that can facilitate the competitive advantage to company. Plan for the B case 1.
The Japanese technology option is probably in-the-money. Another auto will be obtained by the vehicle division two years sooner than the first year arranged which would be from 2003 to 2005. This should be joined inside of the Merseyside venture as a different task. There may be multiple problems that can be faced by any organization. These two cases to consider the investment decisions of managers of large chemical companies are made in January 2001.
This is found to be around 26. By having such a complicated scheme, it will be more difficult to improve all these measure without concentrating on other aspects of the project. Why are the Merseyside and Rotterdam projects mutually exclusive? What should Morris be prepared to say to the Transport Division, the Director of Sales, her assistant plant manager, and the analyst from the Treasury staff? Some students will suggest that Merseyside retain two call options, one on each technology—but this overstates the option value at Merseyside, since one would logically not exercise both call options. Teaching Outline The two cases are meant to be taught—one each—in sequential class sessions. At this stage of the discussion, students should review the need for internally consistent assumptions about inflation. Again, the text does not highlight this issue, but sharp students will raise it. How might those differences in style have affected the outcome of the decision? The teacher will need to add some structure to the unfolding of this aspect of the discussion.
The company has two factories; one in Merseyside, Liverpool and one in Rotterdam, Holland. . Why did the assistant plant manager offer his suggested change? Since its establishment in 1967, Diamond Chemicals failed to jump in on opportunity and enhance their production process; for the way they produced This measure should be positive, is the only requirement here. The additional gross profit that would be produced by this task ought to be deducted by the misfortune made as an aftereffect of the Rotterdam yield. Therefore its investment will not be necessary and if the project does not go through that money will not be reusable. The assessment of real option value latent in managerial flexibility to change operating technologies. Problem Diagnosis This case provides us with a go or not to go decision situation and a decision needs to be made based upon the net present value, internal rate of return, the payback period and the average earnings per share for the Mersey side project.