Presentasi FM_victoria 25

Victoria Chemicals plc (B):

The Merseyside and Rotterdam Project

Andrean Darma LukitaBramantya HarimurtiIla NurhidayatiNabila Hilmy ZhafiraSoraya Inayah Fidran

Corporate project plan

Corporate Plan overview

Current Condition

The Merseyside Project

NPV & IRR

Issues from other departements

1.Transport division 2.Sales department3.Assistant plant manager 4.Treasury staff

Changes to DFC Model

Approachment

The Merseyside project had a higher IRR and a much lower payback period. Rotterdam had a higher NPV by almost half a million pounds, and a larger growth in EPS

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Merseyside Rotterdam

NPV £12.45m £15.5m

IRR 24% 18.0%

PBP 3.78 years 7.95 years

Growth in EPS £0.022 £0.048

Original DCF

Consider new information from other department

Transport Division

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2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 20211 Gross Profit

New Output 267,500 267,500 267,500 267,500 267,500 267,500 267,500 267,500 267,500 267,500 267,500 267,500 267,500 267,500 Lost Output (Konstruksi (33,438) New Sales 157.99 180.56 180.56 180.56 180.56 180.56 180.56 180.56 180.56 180.56 180.56 180.56 180.56 180.56 New Gross Margin 13.8% 13.8% 13.8% 13.8% 13.8% 13.3% 13.3% 13.3% 13.3% 13.3% 12.5% 12.5% 12.5% 12.5% New Gross Profit 21.72 24.83 24.83 24.83 24.83 23.92 23.92 23.92 23.92 23.92 22.57 22.57 22.57 22.57 New COGS Margin 86.3% 86.3% 86.3% 86.3% 86.3% 86.8% 86.8% 86.8% 86.8% 86.8% 87.5% 87.5% 87.5% 87.5% New COGS 136.27 155.74 155.74 155.74 155.74 156.64 156.64 156.64 156.64 156.64 157.99 157.99 157.99 157.99

Old Output 250,000 250,000 250,000 250,000 250,000 250,000 250,000 250,000 250,000 250,000 250,000 250,000 250,000 250,000 Old Sales 168.75 168.75 168.75 168.75 168.75 168.75 168.75 168.75 168.75 168.75 168.75 168.75 168.75 168.75 Old Gross Profit 19.41 19.41 19.41 19.41 19.41 19.41 19.41 19.41 19.41 19.41 19.41 19.41 19.41 19.41

Incremental GP 2.32 5.42 5.42 5.42 5.42 4.52 4.52 4.52 4.52 4.52 3.16 3.16 3.16 3.16

2 WIP Inventory New WIP Inventory 4.09 4.67 4.67 4.67 4.67 4.70 4.70 4.70 4.70 4.70 4.74 4.74 4.74 4.74 Old WIP Inventory 4.48 4.48 4.48 4.48 4.48 4.48 4.48 4.48 4.48 4.48 4.48 4.48 4.48 4.48 Incremental WIP (0.39) 0.19 0.19 0.19 0.19 0.22 0.22 0.22 0.22 0.22 0.26 0.26 0.26 0.26

3 Depreciation New Depreciation 1.6 1.39 1.2 1.04 0.9 0.78 0.68 0.59 0.55 0.55 0.55 0.55 0.55 0.55 New Depreciation Rolling Stock 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 Total New Depreciation 1.6 1.39 1.2 1.24 1.1 0.98 0.88 0.79 0.75 0.75 0.75 0.75 0.75 0.55 Nilai Buku Asset 12 10.4 11.01 9.81 8.57 7.47 6.49 5.61 4.82 4.07 3.32 2.57 1.82 1.07

4 Overhead 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.425 Prelim Engineering Cost

Pretax Incremental Profit 0.30 3.61 3.80 3.96 4.10 3.32 3.42 3.51 3.55 3.55 2.19 2.19 2.19 2.19 After Tax Incremental Profit 0.21 2.53 2.66 2.77 2.87 2.32 2.39 2.46 2.48 2.48 1.54 1.54 1.54 1.54

6 Cash Flow Adjustment Capex -12 Transport Division -2 Add back depreciation 1.6 1.39 1.2 1.04 0.9 0.78 0.68 0.59 0.55 0.55 0.55 0.55 0.55 0.55 WIP Inventory 0.39 (0.58) - - - (0.03) - - - - (0.04) - - -

7 Free Cash Flow -12 2.20 3.33 1.86 3.81 3.77 3.08 3.07 3.05 3.03 3.03 2.05 2.09 2.09 2.09 EPS Contribution 0.02 0.04 0.02 0.04 0.04 0.03 0.03 0.03 0.03 0.03 0.02 0.02 0.02 0.02

NPV : £9.09 11.21 IRR : 22.29% 12EPS : 0.03 (0.79) (0.07) PBP 4 tahun

EFFECT ON DCF NPV = £9.09

IRR = 22.29%

PBP = 4 tahun

Impact on EPS = 0.03

Conclusion : Project still feasible

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Shutdown Time

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ICG Sales and Marketing Department

Tidak dipertimbangkan dengan alasan :

Sales Cannibalization adalah short-term consideration’Merseyside project dilaksanakan dalam jangka panjangSelama masa proyeksi (15 tahun) market size produk poliprone diharapkan meningkat sehingga tidak terjadi idle capacity

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Assistant Plan Manager

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2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 20211 Gross Profit



Incremental GP 2.32 5.42 5.42 5.42 5.42 4.52 4.52 4.52 4.52 4.52 3.16 3.16 3.16 3.16


3 Depreciation New Depreciation 1.6 1.39 1.2 1.04 0.9 0.78 0.68 0.59 0.55 0.55 0.55 0.55 0.55 0.55 Nilai Buku Asset 12 10.4 9.01 7.81 6.77 5.87 5.09 4.41 3.82 3.27 2.72 2.17 1.62 1.07



6 Cash Flow Adjustment Capex -13 Add back depreciation 1.6 1.39 1.2 1.04 0.9 0.78 0.68 0.59 0.55 0.55 0.55 0.55 0.55 0.55 WIP Inventory 0.39 (0.58) - - - (0.03) - - - - (0.04) - - - Cash Addition 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03


NPV £9.72 13.31 IRR 22.70% 12EPS 0.03 1.31 0.11 PBP 3 tahun 2 bulan

EFFECT ON DCF NPV : £9.72

IRR : 22.70%

PBP : 3 tahun 2 bulan

Impact on EPS : 0.03

Project still feasible

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Treasury – discount rate changes from 10% into 7%

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2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 20211 Gross Profit



Incremental GP 2.32 5.42 5.42 5.42 5.42 4.52 4.52 4.52 4.52 4.52 3.16 3.16 3.16 3.16


3 Depreciation New Depreciation 1.6 1.39 1.2 1.04 0.9 0.78 0.68 0.59 0.55 0.55 0.55 0.55 0.55 0.55 Nilai Buku Asset 12 10.4 9.01 7.81 6.77 5.87 5.09 4.41 3.82 3.27 2.72 2.17 1.62 1.07



6 Cash Flow Adjustment Capex -12 Add back depreciation 1.6 1.39 1.2 1.04 0.9 0.78 0.68 0.59 0.55 0.55 0.55 0.55 0.55 0.55 WIP Inventory 0.39 (0.58) - - - (0.03) - - - - (0.04) - - -


NPV £14.36 13.21 IRR 24.73% 12EPS 0.03 1.21 0.10 PBP 3 tahun 2 bulan

EFFECT ON DCF NPV : £14.36

IRR : 24.73%

PBP : 3 tahun 2 bulan

Impact on EPS : 0.03

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Tying all together

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Solutions There is a conflict existing between these two mutually exclusive projects. Therefore, we will choose the best project based on the best criterion, which is NPV because NPV assumes reinvestment at the cost of capital and that is generally the best assumption. Hence, the Rotterdam project should be chosen.

Alternative Solutions

We believe the discount rate should be adjusted. We used the 7% discount rate which was deemed more accurate. We also accounted for a 3% inflation premium.

Implementation of Alternatives

The expected Net Present value of the Rotterdam project using the revised discount rate and premium is GBP 27.79million. NPV gives explicit consideration to the time value of money and is a good method to evaluate the project because it assesses all the cost involved. When the NPV of the project is greater than zero, then the firm can believe that this is an acceptable project. This new NPV shows that the

project is a great investment. If they were to account for full erosion of Rotterdam’s

business volume, there would still be a positive NPV for Merseyside and above the hurdle rate. The new IRR is 10.5% and this holds the project at an 3.5% higher rate than minimally expected for a project. This IRR represents the project in a positive light.

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Conclusion

James Fawn did have an extremely difficult decision to make. Although the Merseyside project passed all four criteria for further consideration, it was NPV

which ultimately prevailed as the superior criterion. Therefore, Fawn should select the Eustace proposal.

Thankyou

Documents

Presentasi FM_victoria 25