Case #4

ROTTERDAM PLANT PROPOSAL

Plant Manager: Elizabeth Eustace

* Expands polypropylene output by 7%

* Has a net present value of £15million and an IRR of 18%

* In the worst case scenario, the project will have a NPV of £12.45 million

* Project costs £10.5 million expanded over a period of 3 years

* This new system of technology will be analog driven and will not be feasible without also obtaining a continuous supply of propylene gas

* There’s an option to purchase a pipeline and its right of way for £3.5 million, which has been included in the initial outlay of £10.5 million. The pipeline can be extended to Rotterdam for very little cost

* Comparable pipelines cost around £6 million

* The value of the right of way will be 40 million in 15 years

* Even though the right of way seems profitable, older senior executives firmly believe that if the Rotterdam project is not chosen, the purchase of the right of way should not be exercised

* Younger senior executives are more willing to consider a potential investment arbitrage

* The benefit of this project is expected to be realized over time considering the installation of the new technology and the learning curve of the workforce

* In the area of cash flows, there is a chance that the new technology can produce both more than expected and also less

* If this new technology is implemented, Victoria Chemicals could be the first in their industry with it and will have a huge head start in the learning curve and reducing production costs

MERSEYSIDE PLANT PROPOSAL

Plant manager: Lucy Morris

* Lucy Morris has only been in her position for the last 12 months

* The Merseyside production process is old and semicontinuous at best, and uses more labor than competitor’s plants

* This plan costs £12 million to renovate and rationalize the polypropylene production line and will increase output by 7%

* New proposal will save energy and improve...