Du Pont Analysis

E.I. du Pont de Nemours and Company: Titanium Dioxide

Assignment: There is no write up due for duPont Titanium Dioxide. We will discuss issues here as time permits. Good case to discuss real asset options.

Questions to discuss prior to class

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

2. Given the forecasts provided in the case, what are the relevant cash flows associated with the following three strategies for managing DuPont's TiO2 business?

Strategy I: Status Quo. Hold production capacity at 325,000 tons per year.

Strategy II: Maintain Strategy. Build capacity to 482,000 tons by 1985.

Strategy III: Growth Strategy. Build capacity to 685,000 tons per year by 1985.

Notice, the status quo is not directly discussed in the case, it just gives a benchmark of comparison between the two strategies being considered (maintain vs. growth).

3. How much risk and uncertainty surround these future cash flows? What are particular sources of risk facing Du Pont?

4. How might competitors respond to Du Pont's choice of either strategy in the TiO2 market?

5. What other factors should Du Pont consider in making this decision?

6. Which strategy, maintain or growth, looks more attractive for Du Pont? What are the key factors leading to your conclusion?

FYI, in 1972, bond yields and recent inflation data were approximately as follows:

Long-term Treasuries = 6.2%

Aaa Corporate bonds = 7.2%

Baa corporate bonds = 7.8%

Inflation rate (CPI) = 3.2%

p 4, column one:

"Ongoing capital expenditure for maintenance and replacement were expected to approximate depreciation allowances over time. Thus, should TiO2 production terminate at any point in the future, it was believed that DuPont's...