Empirical Chemicals a

Topics: Net present value, Discounted cash flow, Internal rate of return Pages: 3 (793 words) Published: June 20, 2012
Empirical Chemicals, LTD. (A):
The Merseyside Project

Is the proposed $7 million expenditure to renovate and rationalize the polypropylene production line at the Merseyside Plant to exploit opportunities and achieve increased production efficiency worth it? They are under pressure from investors to improve financial performance because Earnings per Share Have dropped from $12.75 in 1990 to $4.55 in 1991. Based on the four criterions that EC holds new projects to, I believe that this project should be passed and started immediately.

Empirical Chemicals is a major competitor in the worldwide chemicals industry and a leading producer in polypropylene. Polypropylene is in many items you use daily because it is reliable and durable. The Merseyside Plant was constructed in 1967 and was completely outdated. It operated semi continuous with higher labor cost then competitors newer plants. EC also has another plant in Rotterdam that is of identical scale, age, and design.

New plant manager, Frances Trelawney, has proposed the Plan that she wants to propose to senior management. Her Plan includes the following: (1) Relocating and modernizing the tank car unloading areas, which would allow the process flow to be streamlined; (2) refurbishing the polymerization tank to achieve higher pressures thus greater throughput; and (3) renovating the compounding plant to increase extrusion throughput and obtain energy savings. The Plan would correct the Old plant design that would save energy and improve process flow. It would cost Merseyside $7million and the plant would have to be shut down for 60 days. Since the Rotterdam plant is operating at capacity Merseyside customers will have to buy from competitors. Plant Controller, Jim Hawkins, Believes the lost customers will not be permanent. When completed the plant should be able to produce 7% more polypropylene every year at a lower cost essentially making EC more money. Transport Division Concerns

The transport...
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