Analysis of The Merseyside and Rotterdam Projects

Case 20 (A) and 21 (B): Victoria Chemicals PLC
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Case 20: The Merseyside Project
Victoria chemicals PLC is among the global leading producers and distributors of polypropylene, a polymer used to manufacture many products like syrup bottles and yogurt pots. The company has two identical polypropylene plants in England and Holland. However, the England-based plant started recording a drop in the stock price in 2006, and its managers acted on this problem. Greystock made his analysis on how to solve the problem but was met with criticism with various questions and suggestions. This paper analyses case 20 and 21 following the guiding questions.
1 How does Victoria Chemicals evaluate its capital-expenditure proposals? Why is it such a complicated scheme?
Victoria Chemicals PLC introduced various ways of evaluating capital expenditure proposals, including NPV payback period (PBP), Earnings per share (EPS), NPV, and internal return rate (IRR) (Bruner, 2006). NPV and IRR are the most viable tools for this project. NPV considers the costs and income from all projects while IRR completes the application of NPV. However, complications might occur in cases where cash flow from mutually exclusive projects is negative.
2 What is the Transport Division's suggestion? Does it have any merit?
The Transport Division noted that the projected increase in output might overwhelm the tank cars and suggested that they be included for purchase in the initial outlay. This would push forward the time scheduled to purchase the tank car from 2012 to 2010. This would alter the budgets and the cash flow. The division's suggestion has merit because additional tank cars would automatically be bought to cater to the increased output (Bruner, 2006). The timing was an issue, but it would be safe to procure the tank cars during the initial outlay. Greystock had suggested otherwise that the tank cars be bought later since the plant uses the surplus vehicles from the transport division.
3 What is the director of sales' suggestion? Does it have any merit?
The director of sales has a valid complaint about cannibalizing the Rotterdam plant. In reporting the issue, Greystock has to consider increasing sales in his CDF investigation for the Merseyside plant and Rotterdam. The cannibalization rate can be predicted more accurately. Morris intended to assess further Greystock analysis based on the potential loss of Rotterdam's business capacity, resulting in loss of sales due to the internal cannibalization. This is why the sales director suggested that it might not be possible to accept the project then. His argument has merit.
4 Why did the assistant plant manager offer his suggested change? Does it have any merit?
The assistant plant manager must suggest that he deems helpful to the company. However, the proposed change he gave seemed selfish and has no merit. The plant assistant manager suggested the renovation of the distinct and independent section of the Merseyside plant, which manufactures ethylene-propylene copolymer rubber (EPC) (Bruner, 2006). The assistant, Griffin Tewitt asserted that it would encourage a negative NPV and the EPC project by facilitating poly's renovation.
5 What did the analyst from the Treasury Staff mean by his comment about inflation? Do you agr...