Diamond Chemicals

Topics: Net present value, Internal rate of return, Cash flow Pages: 2 (418 words) Published: May 12, 2009
Diamond Chemicals a major global competitor in the chemical industry and a leading producer of polypropylene. In 2001 the Corporation was facing losses in earnings and the slowdown of the global economy. The Earning per Share (EPS) had fallen by 50% from 1999 to 2000. The controller of the plant in Merseyside proposed a project of £9 million to renovate and rationalize the polypropylene production line at the plant to compensate for deferred maintenance and to exploit opportunities for greater efficiency in production.

The analysis of this project is based on the evaluation of a capital budget of a project proposal for the directive in the company Diamond Chemicals. Among the purposes of this project is the improvement of product and energy savings by increasing efficiency and lowering costs. However, there are some problems such as capital costs, marketing cannibalization, discount rate used, etc. from different departments and divisions. The company needs to take all these factors into account and decide whether to carry out this project. The criteria for analysis include the impact on earnings per share (EPS), payback period, discounted cash flow (NPV analysis), and Internal Rate of Return (IRR).

In the analysis we believe the project will benefit the Diamond Chemicals, and therefore believe that the project should be approved. However, we consider that the company to achieve this project must: 1. Take into consideration the cost of £2 million cars from the division of Transport in the 2003 until 2005 two years earlier in the project and depreciate from year 2003 2. Include the potential loss of business resulting in Rotterdam caused by capital project in this analysis. 3. Must also take into account the costs in lost business for 45 days project plus time to take to regain lost customers in the years following completion of the project. 4. Do not include the renovation project of the EPC. This project does not...
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