Merseyside and Rotterdam projects Essay

I would choose Merseyside picture rather than Rotterdams not only for its superior prospect base on the quantitative criteria, but also for a more sagacious strategy consideration. For the four investment criteria, heres the elaboration.NPV. Since the two plants ar of identical scale, age, design and similar get wind size, it makes sense to use NPV to potvas the two supports. Not taken into account the erosion at Merseyside, the intercommunicate NPV of Rotterdam acoustic projection is GBP4.49 million (GBP15.06 million- GBP10.57 million) high than that of Merseyside project. IRR. The IRR of the Merseyside project (24.3%) is 5 percentage points higher than that of Rotterdam project (17.3%). Payback. Based on the cumulative free cash geological period calculated, the payback period of Merseyside (3.8 years) is four years less than that of the Rotterdam projects (7.9 years), which is a huge difference for a 15-year project. fruit in EPS. Calculated as the reasonable annual EPS contribution of the project over its entire economic support (15 years), the average annual addition to EPS of Merseyside and Rotterdam projects are GBP0.022 and GBP0.030 respectively, with a difference of GBP0.008.A quick look at the four quantitative criteria might draw out(p) that the two projects are of similar value to Victoria Chemicals NPV and Growth in EPS are in favor of Rotterdam while IRR and Payback are in favor of Merseyside. However, taken into consideration the current positioning of the industry, the four criteria should not be of the same weight. As suggested by the director of sales, the industry is in a downturn with a possible oversupply issue slightly the corner. A price competition abide be foreseen among the top suppliers of poly propylene in Europe, which would require a more liquid financial status of the beau monde. A 7.9-year payback suggested by Rotterdam project might put the troupe into a dangerous financial situation among fierce competiti on and the participation might even have no chance to enjoy the proposed benefits (higher NPV and Growth in EPS). With this being said, the Merseyside project is a better choice ground on the quantitative analyses.From the strategy point of view, Merseyside project is still the project that is easier to receive a green light from the senior management of the accompany for the following reasons. 1) The new Japanese process-control engine room is still too spring chicken to ensure the stable efficiency gains across each of the production facilities. up to directly time will help reduce the variability of the efficiency gains generated by the system itself, none of the machinery at Victoria Chemicals two plants has been tested for the compatibility for this Japanese technology. Admittedly, the potential success of the Rotterdam project will benefit the company importantly in terms of both(prenominal) market position and financial status, it was ground on too many assumpti ons and thus less persuasive. 2) Although the Rotterdam project is a phased program, it is irreversible due to the complexity of the technology and the extent to which it would permeate the plant. That is to say, at once the senior management choose the Rotterdam project and the new technology turns out to be less than satisfactory, all the investments are wasted. Moreover, it would be hard to dispense the purchase option of a pipeline and its right-of-way if the plan didnt reverse out due to the strong objection from some senior executives.3) It would be harder for Victoria Chemicals to justify to investors its investment in Rotterdam project than in Merseyside project. Rotterdam project is dependent on a technology with unforeseeable future and propylene supply that are subject to vary over time. These factors are sticky to quantify and for investors, who have already cast doubt on the companys financial performance due to the corporate raider Sir David Benjamin, these can exa cerbate their unsecure feeling towards the company and thus worsen the projected EPS. 4) demand the Rotterdam project can achieve all the predicted financial goals and benefit both plants, theres no reason that the new control technology has to be constituteed now. O the contrary, Merseyside project is comparatively simpler for execution and the effects of it can be seen sooner (only a 1.5 months downtime for construction is needed versus 12 months downtime involve by Rotterdam project).Given the facts mentioned, why not choose Merseyside project now and wait for two years to see how the market develops and decide whether to install the new control technology that might be more advance and stable at that time? Some may argue that the Merseyside project is too conservative and might jeopardize Victoria Chemicals chance to compose the pioneer in using advanced process control technology, however, base on aforementioned analysis, I believe the Merseyside project will be the r ight choice at this timing but the flexibility of adding the technology in the future should be retained.