Essay About Identification Of Relevant Cash Flows And Diamond Chemicals Plc

Diamond Chemicals Plc(a) : The Merseyside Project
UCONN School of BusinessOPIM 5668 Case StudyDiamond Chemicals PLC (A): The Merseyside ProjectSubmitted By: Group 7Harshvardhan ReddyYingxin ZhangNavjot SinghYi ChenTable of ContentsExecutive Summary:        Statement of the Problem:        Background:        Methodology:        Results:        Identification of Relevant Cash Flows        Sunk Costs        Cash flows obtained by cannibalizing another activity within the firm        Exploitation of excess transportation capacity        Overhead:        Cash flows of unrelated projects        Inflation        Changes Required in DCF        Morris’s Answers for different Departments        Transport Division        Director of Sales        Assistant plant manager        Analyst from the Treasury Staff        Attractiveness of Merseyside Project        Conclusions and recommendations        Appendix        References        Executive SummaryDiamond Chemicals is a chemical company whose major product is polypropylene. Its major market areas are Europe and Middle East. Company has two plants at Merseyside, England and Rotterdam, Holland. The two plants are identical and are set in 1967. Because of the recent economic downturn the company came under pressure from investors to improve the financial performance.The project under study brought up by Morris the plant manager at Diamond Chemical is an engineering efficiency project. According to the initial project details, the proposed project has an expenditure of $9 million and shutdown period of 45 days for the work to take place. It is supposed to increase the through output by %7 and increase the gross profit margin from 11.5% to 12.5% and also lower energy requirement which comes under savings. The initial project evaluation reports the EPS as $0.018, payback period as 3.6 years, NPV 9MM and IRR as 25.9%. It cleared all the four hurdles to pass through the corporate vote.