Diamond Chemical case analysis
Case Analysis:
Diamond Chemicals plc
Group Members
PREPARED By:
Kumar Vivek
MP13031
Rajeev Das
MP13040
Sanjiv Ranjan
MP13048
Suraj P.Upadhyay
MP13062
Vishav Bandhu Sharma
MP13070
Case Background
Diamond Chemicals is a large worldwide chemicals producer with two factories in Liverpool England andRotterdam Holland. Both of their plants were built in 1967 with annual output of 250,000 metric tons polypropylene. Compare with low-cost producer, the production cost per ton is 1.09 which is a little bit high than competitors
With the decline Earning Per Share from £60 in 1999 to £30 in 2000 and worldwide economic slowdown, the controller of plant manager of Merseyside (Liverpool), Frank Greystock, bring a improvement project in order to make plant more efficiency, more output and save more energy.
Case Issues: An overview
i. The production line would have to be shut down for 45 days during which customers would buy from competitors. ii. The project would require the parent company’s Transport Division to invest 2 mn pounds which the controller refuses to add in her own project’s outlay. iii. The marketing department is skeptical about sales figures due to the ongoing recession. iv. The assistant plant manager wants the controller to include an EPC project as a part of the overall project.
v. A Treasury analyst says the discount rate used is incorrect. Additionally, the treatment of engineering costs is incorrect.
Analysis and Interpretations :
Assumptions of the Project
Annual Output(metricton)
250,000
Output gain/Original output (%)
7
Price/ton (in pond)
541
Inflation rate(price and cost)
0
Gross margin
12.5
Old gross margin
11.5
Tax rate
30
Investment outlay in million
9
Energy saving Yr1-5(%)
1.25
Energy saving Yr 5-10(%)
0.8
Energy saving Yr 11-15(%)
0
Discount rate
10
Depreciable life
15
Overhead/Investment
3.5
Salvage value
0
WIP inventory/Cost of goods
3
Months downtime Construction
1.5
After tax scrap proceeds
Diamond Chemicals plc
Group Members
PREPARED By:
Kumar Vivek
MP13031
Rajeev Das
MP13040
Sanjiv Ranjan
MP13048
Suraj P.Upadhyay
MP13062
Vishav Bandhu Sharma
MP13070
Case Background
Diamond Chemicals is a large worldwide chemicals producer with two factories in Liverpool England andRotterdam Holland. Both of their plants were built in 1967 with annual output of 250,000 metric tons polypropylene. Compare with low-cost producer, the production cost per ton is 1.09 which is a little bit high than competitors
With the decline Earning Per Share from £60 in 1999 to £30 in 2000 and worldwide economic slowdown, the controller of plant manager of Merseyside (Liverpool), Frank Greystock, bring a improvement project in order to make plant more efficiency, more output and save more energy.
Case Issues: An overview
i. The production line would have to be shut down for 45 days during which customers would buy from competitors. ii. The project would require the parent company’s Transport Division to invest 2 mn pounds which the controller refuses to add in her own project’s outlay. iii. The marketing department is skeptical about sales figures due to the ongoing recession. iv. The assistant plant manager wants the controller to include an EPC project as a part of the overall project.
v. A Treasury analyst says the discount rate used is incorrect. Additionally, the treatment of engineering costs is incorrect.
Analysis and Interpretations :
Assumptions of the Project
Annual Output(metricton)
250,000
Output gain/Original output (%)
7
Price/ton (in pond)
541
Inflation rate(price and cost)
0
Gross margin
12.5
Old gross margin
11.5
Tax rate
30
Investment outlay in million
9
Energy saving Yr1-5(%)
1.25
Energy saving Yr 5-10(%)
0.8
Energy saving Yr 11-15(%)
0
Discount rate
10
Depreciable life
15
Overhead/Investment
3.5
Salvage value
0
WIP inventory/Cost of goods
3
Months downtime Construction
1.5
After tax scrap proceeds