Dupont Case Analysis

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  • Topic: Investment, Economics, Net present value
  • Pages : 4 (595 words )
  • Download(s) : 123
  • Published : February 7, 2013
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E. I. du Pont’s strategy will have to
respond to future challenges in
the TiO₂ market
TiO₂ market: Oligopolistic, highly competitive and
undergoing major technology changes, substantial excess
demand.
Future potential: Market growth of 3% a year with an
expected market size of 1,072,000 tons in year 1985,
potential of 65% market leadership
Challenge for Du Pont: What strategy will maximize the
value of our TiO₂ business?
Alternatives for E.I. Du Pont
Do nothing
Maintain
Growth
Main implications
- Aggressive increase capacity to 685 k tons (6% p.a.) by 1985. Yearly CAPEX of US$ ~30 m
- Market share increase from 35% (1973) to 64% (1985)
- Market prices increase to US$ 1,430 per ton (8% p.a.)
- Restricted technology licensing to competition
- Moderate increase capacity to 482 k tons (3% p.a.) by 1985. Yearly CAPEX of US$ ~13 m
- Market share increase from 35% (1973) to 45% (1985)
- Market prices increase to US$ 1,370 per ton (7% p.a.)
- No change of capacity. No capital investment, other than capital expenditures that offset the depreciation amount.
- Market share decrease from 35% (1973) to 30% (1985)
- Market prices increase to US$ 1,370 per ton (7% p.a.)
Strategy
alternatives
NOTE: WACC of 15%
1 Incremental cash flows over the “Do-Nothing” strategy
2 US$ of NPV per US$ of Working Capital and Capital Expenditures, net of Tax Credits. The investment in working capital and capital expenditures required under Growth is US$532m; under Maintenance, it is $266m; under “Do-Nothing,” it is $69m. • NPV is highest under Growth.

• IRRs from Maintain and Growth are
high, supporting the case for either, but
not strictly conclusive.
• Profitability Index represents a picture
of NPV generation relative to the
investment amount. As the amount of
investment under Growth is $532m,
almost twice that under Maintain,
Growth scenario has the lowest
profitability index.
• Conclusion: As there are no strict
capital constraints on this project,...
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