Du Pont Case

Table of Contents

Question 1 – DuPont’s Advantages 1

Question 2 – Forecast and Analysis1 Estimation of Free Cash Flow1

Varying Discount Rate 3

Risk and Uncertainty of the Investments 3

Uncertainty and Monte Carlo Analysis 3

Question 3 – Comptetitor Response4

Question 4 – Conclusion4

I. What are DuPont's competitive advantages in the TiO2 market as of 1972? How permanent or defensible are they? What must DuPont do to retain its competitive advantages in the future?

DuPont’s size as a company and their ability to create new and innovative methods for production, usually allows them to reside in a dominant position in the markets they do business in. Leading into 1972 DuPont was positioned as the leading shareholder in the pigmentation market specifically concerning TiO2. The Edge Moor plant for DuPont was built in 1952 and was a profitable and steady plant in 1972 even though it had taken over three years to achieve profitability. The insights and experience in implementing their proprietary production technology proved invaluable when DuPont was able to make TiO2 profitably through a process using ilmenite chloride, even though rivals were unsuccessful.

DuPont in 1972 owned what nearly amounted to a monopoly on the production capacity of TiO2 by way of the ilmenite chloride method. The advantages in this method were enhanced greatly over the last few years leading up to 1972, including increased tariffs on imported materials used in TiO2 manufacturing. The weakening of the Unite State dollar, new costly environmental regulations implemented against alternative production methods, and the apparent drying up of rutile ore deposits in Australia (used in the high grade chloride method) also contributed to DuPont’s competitive advantage in using the ilmenite chloride method for TiO2 production.

Rising costs of production and decreased profit margins across the TiO2 production industry caused several of DuPont’s competitors to close down some of their...