Diamond Chemicals Case Study11 - Final
Diamond Chemicals Case Study11 - Final
Diamond Chemicals Case Study11 - Final
Study
Masters in Finance | Applied Corporate Finance
GROUP 5A
Francisco Santos, 2273
Joo Santa Brbara, 2274
Jos Barbosa, 2329
Lus Colao, 2548
Miguel Pinto, 2316
Agenda
Executive Summary
Industry Overview
The Merseyside Project
Projects Valuation Process
Projects Attractiveness
GO/ NO GO Analysis
Mutually exclusive?
Merseyside vs Rotterdam
NPV and EPS
IRR and Payback
Strategic Comparison
Recommendations
NOVA SCHOOL OF BUSINESS AND ECONOMICS | APPLIED CORPORATE FINANCE |
GROUP 5A
Executive
summary
Industry Overview
Cannibalization (include)
Impact on NPV -3,20M
Action: Because of the project, sales may decrease in the Rotterdam
factory
Inflation (include)
Impact on NPV +2,89M
Action: Acknowledge that the Treasury Staff was right. Since the Cash flows did not
include inflation, then the discount rate had to be the real one. Or, as we suggest, keep
using the nominal discount rate and add the 3% inflation estimated by the Treasury
staff.
Initial NPV
9M
EPC Project
0M
Cannibalization
3.2M
Engineering Costs
0.32M
Inflation
Agenda
Executive Summary
Industry Overview
The Merseyside Project
Projects Valuation Process
Projects Attractiveness
GO or NO GO Analysis
Mutually exclusive?
Merseyside vs Rotterdam
NPV and EPS
IRR and Payback
Strategic Comparison
Recommendations
NOVA SCHOOL OF BUSINESS AND ECONOMICS | APPLIED CORPORATE FINANCE |
GROUP 5A
Projects
Attractiveness
NPV = +5.68M
IRR = 24%
Financial
View
EPS = +0.0611 per
Payback = 4.08
share
years
10
Projects
Attractiveness
Increase productivity
Strategic
Flexibility in termsView
of
45 day shutdown, which will
change in technology
11
GO or NO GO Analysis
Because of:
Meeting all financial requirements
Increasing the companys productivity
Being flexible to change to a new technology
12
Mutually
Exclusive?
Exclusivity in Demand?
Assuming that the market stays constant for 15 years
Setting the annual output equal to 250.000 tons in both factories
The NPV is still positive in both projects, therefore they are
not mutually exclusive in demand
However and since the group does not have enough information,
we believe that the projects may be mutually exclusive due to
budget constrains or strategic goals.
NOVA SCHOOL OF BUSINESS AND ECONOMICS | APPLIED CORPORATE FINANCE |
GROUP 5A
13
Agenda
Executive Summary
Industry Overview
The Merseyside Project
Projects Valuation Process
Projects Attractiveness
GO or NO GO Analysis
Mutually exclusive?
Merseyside vs Rotterdam
NPV and EPS
IRR and Payback
Strategic Comparison
Recommendations
14
Rotterdam
NPV =GBP
5,68 M
NPV = GBP
17,31 M
EPS = 0,0611
EPS =0,1863
15
Rotterdam
IRR =24,03%
IRR = 19,03%
Payback = 4,08
Years
Payback = 8,17
years
16
Strategic
Comparison
Merseyside
Fits all the four performance hurdles
Quickly implemented
No learning curve, short term solution
The Gross Margin starts decreasing after
year 5, which reflects its short horizon
17
Strategic
Comparison
Rotterdam
Greater NPV
Long term horizon
Explore the learning curve
Only meets three of the requirements
Relies on the analysis of external
consultants
NOVA SCHOOL OF BUSINESS AND ECONOMICS | APPLIED CORPORATE FINANCE |
GROUP 5A
18
Recommendation
The
financials
(NPV)
suggest:
We want a
long term
investment
Flexibility
of the
other
factory
Rotterda
m
project
NOVA SCHOOL OF BUSINESS AND ECONOMICS | APPLIED CORPORATE FINANCE |
GROUP 5A
19
GROUP 5A
Francisco Santos, 2273
Joo Santa Brbara, 2274
Jos Barbosa, 2329
Lus Colao, 2548
Miguel Pinto, 2316