No one seems satisfied with the analysis so far, but the suggested changes could kill the project.
If sold projects like this can? Morris was plant manager of Diamond Chemicals? Merseyside Works in Liverpool, England. Her controller, Frank Greystock, was discussing a capital project that she wanted to propose to senior management.
Diamond Chemicals was under pressure from investors to improve its financial performance because of both the worldwide economic slowdown and the accumulation of the firm? Morris thus believed that the time was ripe to obtain funding from corporate headquarters for a modernization program for the Merseyside Works?
Polypropylene was essentially priced as a commodity. The production of polypropylene pellets at Merseyside began with propylene, a refined gas received in tank cars.
Propylene was purchased from four refineries in England that produced it in the course of refining crude oil into gasoline. In the first stage of the production process, polymerization, the propylene gas was combined with the diluent or solvent in a large pressure tank and was then concentrated in a centrifuge.
The second stage of the production process compounded the basic polypropylene with stabilizers, modifiers, fillers, and pigments to achieve the desired attributes for a particular customer. The finished plastic was extruded into pellets for shipment to the customer.
The Merseyside production process was old, semicontinuous at best and, therefore higher in labor content than competitors? The Merseyside plant was constructed in Diamond Chemicals produced polypropylene at Merseyside and in Rotterdam, Holland. The two plants were of identical scale, age, and design.
The company positioned itself as a supplier to customers in Europe and the Middle East. The strategic-analysis staff estimated that, in addition to numerous small producers, seven major competitors manufactured polypropylene in Diamond Chemicals? Their plants operated at various cost levels.
Exhibit 1 presents a comparison of plant sizes and indexed costs. When she assumed responsibility, she undertook a detailed review of the operations and discovered significant opportunities for improvement in polypropylene production.
Some of these opportunities stemmed from the deferral of maintenance over the preceding five years. In an effort to enhance the operating results of the Works, the previous manager had limited capital expenditures to only the most essential.
Now, what had been routine and deferrable was becoming essential.
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Other opportunities stemmed from correcting the antiquated plant design in ways that would save energy and improve the process flow: The entire polymerization line would need to be shut down for 45 days, however, and because the Rotterdam plant was operating near capacity, Merseyside? Greystock believed the loss of customers would not be permanent.
The benefits would be a lower energy requirement as well as a 7 percent greater manufacturing throughput. In addition, the project was projected to improve gross margin before depreciation and energy savings from The engineering group at Merseyside was highly confident that the efficiencies would be realized.
Merseyside currently producedmetric tons of polypropylene pellets a year. The tax rate required in capital-expenditure analyses was 30 percent.
Greystock discovered that any plant facilities to be replaced had been completely depreciated. New assets could be depreciated on an accelerated basis over 15 years, the expected life of the assets. The increased throughput would necessitate a one-time increase of work-in-process inventory equal in value to 3 percent to cost of goods.
Greystock included in the first year of his forecast? Finally, the corporate manual stipulated that overhead costs be reflected in project analyses at the rate of 3. Greystock had produced the discounted-cash-flow summary given in Exhibit 2.
It suggested that the capital program would easily hurdle Diamond Chemicals? The Transport Division, a cost center, oversaw the movement of all raw, intermediate, and finished materials throughout the company and was responsible for managing the tank cars.
Because of the project?Victoria Chemicals is one of the leading producers of Polypropelene, a polymer that is used in many products ranging from carpet fibers, automobile automobile components, packaging film and more. When Victoria Chemicals started up in they built two plants, one in Merseyside, England and one in Rotterdam, Holland.
victoria chemicals plc (a): the merseyside project Late one afternoon in January , Frank Greystock told Lucy Morris, “No one seems satisfied with the analysis so . View Test Prep - Victoria+Chemical+Exhibit+2+Feb+17 from ORSC at Lahore University of Management Sciences.
Exhibit 2 VICTORIA CHEMICALS (A) Frank Greystock. Victoria chemicals PLC (A): the Merseyside Project As a world wide major competitor in the chemical industry, Victoria Chemicals is a leading producer of polypropylene, a polymer that is used in a variety of products around the globe.
victoria chemicals plc (a): the merseyside project Late one afternoon in January , Frank Greystock told Lucy Morris, “No one seems satisfied with the analysis so far, but the suggested changes could kill the project. View Lab Report - Victoria+Chemical+Exhibit+2+Feb+17 (edited file) from ACF at Lahore University of Management Sciences.
Exhibit 2 VICTORIA CHEMICALS (A) Frank Greystock's DCF Analysis of.