Mersey Side Case
Diamond Chemicals PLC
Case 1 The Merseyside Project | Analyze the real world scenario to figure if Merseyside Project is a promising project | Date: 4th Sep, 2013 |
Background & Problem Statement
Diamond chemicals is a leading propylene producer and a major player in the chemicals industry worldwide. However the share of the company had fallen from £60 at the end of 1999 to £30 in 2000 on account of worldwide economic slowdown and poor financial performance. Given the prevalent scenario, it was time to obtain funds from corporate headquarters for a modernization program for Merseyside project. This project will not only renovate and rationalize a production line but also make up for deferred maintenance and increase production efficiency. Lucy Morris is the Plant Manager at Merseyside and by nature she is a high achiever and a Notre dame MBA. Frank Greystock is the Controller, President of Diamond Chemicals. To make a compelling case, Frank and Lucy try to make a financial model to calculate the NPV, IRR and Payback period for this project but are challenged on several aspects. To pursue their endeavor, they need to correct the model as per the feedback from the shareholders and management. Thus the problem statement is to suggest corrections to the existing model and thus calculate the NPV, IRR and payback period which would not be challenged further and the project could be approved.
Methodology and Results
In addition to the baseline model presented in Exhibit 2 of the case study, four cash flow models were built considering the following criteria:
* Cannibalization: This model was directly taken from the case study and was used as a starting point for reference. This model presents the information that Greystock included on the analysis that was submitted to Morris. Cannibalization of demand: This model reflects a reduced output at Rotterdam. The cannibalization aspect is obtained by shifting the added volume from the plant in
Case 1 The Merseyside Project | Analyze the real world scenario to figure if Merseyside Project is a promising project | Date: 4th Sep, 2013 |
Background & Problem Statement
Diamond chemicals is a leading propylene producer and a major player in the chemicals industry worldwide. However the share of the company had fallen from £60 at the end of 1999 to £30 in 2000 on account of worldwide economic slowdown and poor financial performance. Given the prevalent scenario, it was time to obtain funds from corporate headquarters for a modernization program for Merseyside project. This project will not only renovate and rationalize a production line but also make up for deferred maintenance and increase production efficiency. Lucy Morris is the Plant Manager at Merseyside and by nature she is a high achiever and a Notre dame MBA. Frank Greystock is the Controller, President of Diamond Chemicals. To make a compelling case, Frank and Lucy try to make a financial model to calculate the NPV, IRR and Payback period for this project but are challenged on several aspects. To pursue their endeavor, they need to correct the model as per the feedback from the shareholders and management. Thus the problem statement is to suggest corrections to the existing model and thus calculate the NPV, IRR and payback period which would not be challenged further and the project could be approved.
Methodology and Results
In addition to the baseline model presented in Exhibit 2 of the case study, four cash flow models were built considering the following criteria:
* Cannibalization: This model was directly taken from the case study and was used as a starting point for reference. This model presents the information that Greystock included on the analysis that was submitted to Morris. Cannibalization of demand: This model reflects a reduced output at Rotterdam. The cannibalization aspect is obtained by shifting the added volume from the plant in
References: i. Darden Business Publishing: Diamond Chemicals PLC (A): The Merseyside Project ii. http://www.bankofengland.co.uk/publications/Pages/inflationreport/infrep.aspx iii. Class 1 & 2 Presentations from Operations Cost and Risk Management Appendix: