Analysis Dimond Chemicals Plc

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Morris to Transport Division:

- The increase of allocation of tank cars in Merseyside is necessary for its future increased throughput.

- The budget of the program will add GBP 2 million for the excess transportation capacity in 2003.

- The allocation for the GBP 2 million should be returned in 2005 and burdened by transportation division.

Morris to Director of Sales:

No market cannibalization will happen caused by the increasing output provided by Merseyside after renovation for the following reasons.

- The plant at Merseyside might be able to get the business from other companies with lower cost.

- The market will retrieve later and thus they don’t have to struggle with gaining new business.

Morris to assistant plant manager:

The EPC project will not be undertaken for the following reasons.

- Extra EPC project will expand the scope of project for Merseyside’s plant.

- EPC project will cost GBP 1 million which is not a small amount. This may cause company have some liquidity risk.

- The market for EPC remains a relatively small part in European chemical industry. It may not bring a lot of revenue.

Morris to analyst from the Treasury Staff:

Change discount rate to 7% considering inflation rate of 3%.

4. How attractive is the Merseyside project? By what criteria?

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As we can see from the screen shot of advised Exhibit 2, we can safely conclude that Merseyside project is pretty attractive for its good NPV, IRR and reasonable PBP. The PBP is 3 and it is less than 6 years; NPV is 13.5 and it is positive; IRR is 30.2%, which is greater than 10%. In conclusion, it is an attractive project.

5. Should Morris continue to promote the project for funding? Why?

Yes. Morris should continue to promote the project for funding for the following reasons.

- The problems have to be solved for the modernization of the company.

- The plant in Merseyside will reduce the costs and gain more business in a long run.

- The market will retrieve sooner or later and there will be an increasing demands for the products.

- The analysis shows NPV is positive. This indicates the project will bring profit for the company.

- It is an attractive project, shown with its NPV, IRR and PBP.