This spreadsheet was prepared by Professor Michael J. Schill and Robert F. Bruner.

Copyright 2008 by the University of V

Charlottesville,
VA. All rights reserved.
Rev. Jun. 21, 2012

This spreadsheet supports STUDENT analysis of the case Victoria Chemicals PLC (A): The Merseyside
Project (Case 24).

red by Professor Michael J. Schill and Robert F. Bruner. Copyright 2008 by the University of Virginia Darden School Foundation,
ts reserved. For customer service inquiries, send an e-mail tosales@dardenbusinesspublishing.com. No part of this publication may be

Exhibit 2
VICTORIA CHEMICALS (A)
Frank Greystock's DCF Analysis of Merseyside Project
(financial values in millions of British pounds)
Assumptions
Annual Output (metric tons)
Output Gain/Original Output
Price/ton (pounds sterling)
Inflation Rate (prices and costs)
Gross Margin (ex. Deprec.)
Old Gross Margin
Energy Savings/Sales Yr. 1-5
Yr. 6-10
Yr. 11-15

250,000
7.0%
675
0.0%
12.50%
11.5%
1.25%
0.75%
0.0%

1
Year
Now
2008
1. Estimate of Incremental Gross Profit
New Output (tons)
267,500
Lost Output--Construction
(33,438)
New Sales (Millions)
157.99
New Gross Margin
13.8%
New Gross Profit
21.72
Old Output
Old Sales
Old Gross Profit
Incremental Gross Profit

250,000
168.75
19.41
2.32

2. Estimate of Incremental WIP inventory

New WIP inventory
4.09
Old WIP inventory
4.48
Incremental WIP inventory
-0.39
3. Estimate of Incremental Depreciation
New Depreciation
1.60
4. Overhead
0.42
5. Prelim. Engineering Costs
0.50
Pretax Incremental Profit
-0.20
6. Cash Flow Adjustments
Less Capital Expend -12.00
Add back Depreciation
1.60
Less Added WIP inventory
0.39
7. Free Cash Flow
-12.00
1.85
NPV =
IRR =

10.57
24.3%

Discount rate
Tax Rate
Investment Outlay (mill.)
Depreciable Life (years)
Salvage Value
WIP Inventory/Cost of Goods
Months Downtime, Construction
Preliminary Engineering Costs
Overhead/Investment
2
2009

3
2010

4
2011

5
2012

10.0%
30%
12.0
15
0
3.0%
1.5
0.5
3.5%
6
2013

267,500 267,500 267,500 267,500 267,500

180.56
13.8%
24.83

180.56
13.8%
24.83

180.56
13.8%
24.83

180.56
13.8%
24.83

180.56
13.3%
23.92

250,000 250,000 250,000 250,000 250,000

168.75 168.75 168.75 168.75 168.75
19.41
19.41
19.41
19.41
19.41
5.42
5.42
5.42
5.42
4.52

7
2014

8
2015

9
2016

10
2017

11
2018

12
2019

13
2020

14
2021

15
2022

267,500 267,500 267,500 267,500 267,500 267,500 267,500 267,500 267,500

180.56
13.3%
23.92

180.56
13.3%
23.92

180.56
13.3%
23.92

180.56
13.3%
23.92

180.56
12.5%
22.57

180.56
12.5%
22.57

180.56
12.5%
22.57

180.56
12.5%
22.57

180.56
12.5%
22.57

250,000 250,000 250,000 250,000 250,000 250,000 250,000 250,000 250,000

168.75 168.75 168.75 168.75 168.75 168.75 168.75 168.75 168.75
19.41
19.41
19.41
19.41
19.41
19.41
19.41
19.41
19.41
4.52
4.52
4.52
4.52
3.16
3.16
3.16
3.16
3.16

4.67
4.48
0.19

4.67
4.48
0.19

4.67
4.48
0.19

4.67
4.48
0.19

4.70
4.48
0.22

4.70
4.48
0.22

4.70
4.48
0.22

4.70
4.48
0.22

4.70
4.48
0.22

4.74
4.48
0.26

4.74
4.48
0.26

4.74
4.48
0.26

4.74
4.48
0.26

4.74
4.48
0.26

1.39
0.42

1.20
0.42

1.04
0.42

0.90
0.42

0.78
0.42

0.68
0.42

0.59
0.42

0.55
0.42

0.55
0.42

0.55
0.42

0.55
0.42

0.55
0.42

0.55
0.42

0.55
0.42

3.61

3.80

3.96

4.10

3.32

3.42

3.51

3.55

3.55

2.20

2.20

2.20

2.20

2.20

1.39
-0.58
3.33

1.20
0.00
3.86

1.04
0.00
3.81

0.90
0.00
3.77

0.78
-0.03
3.08

0.68
0.00
3.07

0.59
0.00
3.05

0.55
0.00
3.03

0.55
0.00
3.03

0.55
-0.04
2.04

0.55
0.00
2.08

0.55
0.00
2.08

0.55
0.00
2.08

0.55
0.26
2.34