Vic Chemicals

The case series, Victoria Chemicals plc (A & B) Merseyside and Rotterdam Projects, considers the capital-investment decisions to be made by executives of a large chemicals firm in January 2008. Victoria Chemicals, a major competitor in the worldwide chemicals industry, is a leading producer of polypropylene, which is a polymer known for its strength and malleability.

Case A presents a go or no-go project evaluation regarding improvements to a polypropylene production plant. Case B reviews the same project but from one level higher, where the executives face an either or investment decision between two mutually exclusive projects

James Fawn, executive vice president of the Intermediate Chemicals Group (ICG) of Victoria Chemicals, is evaluating two mutually exclusive proposals on their capital expenditures. There are two plants that produce polypropylene for Victoria Chemicals. The two plants are located in Liverpool, England, and Rotterdam, Holland. The plants were built in 1967 and are identical in scale and design. These two plants supply Victoria Chemicals’ European and Middle Eastern customers. It has been estimated that there are several major competitors of Victoria Chemicals in its market region and numerous small producers.

The Liverpool and Rotterdam plants have organized individual proposals. With both of the proposals complied they had the potential to increase the polypropylene output by 7 percent for their plant respectively. Although Victoria Chemicals could not view a 14 percent increase companywide did not make sense, they still agreed that half of it would. The board would approve only one of the projects. James Fawn must support one proposal and then submit it to the board for consent.

In submitting a project for Senior Management’s approval, the project’s initiators have to identify it belonging to one of four possible categories:

(1) New product or market

(2) Product or market extension

(3) Engineering...