1. Given the forecasts provided in the case, estimate the expected incremental free

cash flows associated with Du Ponts growth strategy and maintain strategy for the

TiO₂ market. Consider both an internal rate of return (IRR) and discount breakeven

analysis. marginal tax rate is 48%

First, you need to determine the cost of capital--use historical resources to identify the appropriate interest rate. Second, make sure you get the tax rate correct, which I believe is embedded in the case appendix. Do not forget that there is a 10 percent tax credit on the growth strategy on incremental revenues from old capacity. The income statement should take this structure:

1) Calculate sales

2) Calculate costs which will lead to profitability

3) Configure CapEx AFTER you calculate profitability

CapEx = Cost of Plant/Ton Capacity x tons capacity added = incremental expenditure

You need to do it on a year-by-year basis as opposed to putting up all $500MM up front.

Ultimately, the residual cash flow = Profitability - CapEx

Bottom line: You need to solve for Net Present Value on an incremental (year-by-year) basis and a cumulative basis to determine the payoff. It behooves you to provide the payoff off period before the project breaks even and the Internal Rate of Return (IRR).

PDE XANEDU PDF.pdf + File D:/XANEDU%20PDF.pdf O * it + DePaul University... * Credit CARD Act of... C Consumer Financial... A New folder * Lozano Early Spring... Imported from Inte... Other favorites O 27 of 162 + - LAV Read aloud | Draw Highlight > Erase 284-066 -7- Size of Marketa (tons 000) Cost of Pretax New Capacity Operating Expenses ($ per ton) ($ per ton) Average Gross Selling Price ($ per ton) Growth Strategy Du Pont Market Share (%) Du Pont Capacity (tons 000) Maintain Strategy Average Gross Du Pont Selling Price Market Share ($ per ton) (%) Du Pont Capacity (tons 000) 330 390 460 540 640 350 375 400 1973 1974 1975 1976 1977 1978 1979 1980 1981 35 40 45 45 45 45 421 443 752 774 798 822 846 872 898 925 952 981 1,010 1,041 1,072 900 927 955 983 1,013 1,043 1,075 1,107 1.140 1,174 1.210 1.246 1,283 540 580 620 660 690 750 880 950 1,010 1,070 1,130 1,190 1,250 1,310 1,370 1.430 35 40 47 47 51 52 52 55 58 59 61 62 64 555 665 760 890 955 1,015 1,070 1,120 1,170 1.210 1.270 1,320 1,370 475 505 530 552 579 616 645 685 340 350 360 370 381 392 404 416 428 441 455 468 482 45 45 45 45 45 710 740 770 810 850 1982 1983 1984 1985 45 45 Downloaded by EDGAR CRUZ on 104/2021. DePaul University, Professor Jettrey Bieman, Winter 2021 Total demand for TIO, is forecast to grow at 3% annually and is not considered to be very sensitive to price b Pretax operating expense per ton includes depreciation allowances but excludes interest expense. ' Type here to search H O a ? OOO 4) 3:46 PM 1/13/2021 99+ 28 PDE XANEDU PDF.pdf + File D:/XANEDU%20PDF.pdf a * it + DePaul University... * Credit CARD Act of... C Consumer Financial... B New folder i Lozano Early Spring... Imported from Inte... A Other favorites 26 O of 162 + | AV Read aloud | Draw Highlight Erase A 284-066 Exhibit 2 % Domestic TIO, Production Capacity by Firm Total Domestic TO Shipments by Firm, Including Imports 1972 est. 1971 1970 1972 est. 1971 1970 1972 est 1971 000 tons % 000 tons % 000 tons % 000 tons % 000 tons % 000 tons % % $ millions % $ millions Du Pont 325 23 277 33 252 30 220 30 222 31 206 30 100 29 98 NL Industries 27 268 258 32 180 25 209 30 210 31 95 102 102 American Cyanamid 90 10 82 10 90 1180 11 72 10 53 8 40 12 30 SCM 75 9 78 78 9 9 65 9 64 9 58 25 7 26 Guif & Western 70 8 70 70 B 80 8 26 4 30 4 30 9 9 * 11 Kerr-McGee 45 5 39 5 37 5 45 6 37 5 5 31 5 20 6 12 Sherwin-Williams 25 3 27 3 27 3 30 26 4 21 3 10 3 12 PPG - - 18 10 Total (U.S.firms) 960 100 841 100 840 100 680 93 666 94 618 91 320 Imports 16 Total 841 100 840 100 100 ZOZ 100 100 340 10 311 Source: Federal Trade Commission, In the matter of E.I. du Pont de Nemours & Co., Docket No. 9108, Complaint Counsel's Exhibits Nos. CX121A, B; CX223A, B, and CX222. a Excluded exports Thousands of tons shipped. Dollar value of shipments 1970 % S millions 31 100 33 112 10 27 3 13 4 4 16 4 8 31 35 7 8 4 5 2 - 1 92 95 304 100 100 oaded by EDGAR CRUZON 104/2021. DePaul University. Professor Jettrey Bieman, Winter 2021 Exhibit 3 Tio Production by Firm and Type of Process, 1970 (tons 000) Total Production Sulfate Process Chloride Process 43 193 47 48 168 36 9 3 Du Ponto NL Industries American Cyanamid SCM Gulf & Western Kerr-McGee Sherwin-Williams PPG Total 211 229 56 51 33 35 19 10 644 35 19 10 280 364 Source: Federal Trade Commission, in the Matter of E. I. du Pont de Nemours & Co., Docket No. 9108. Initial Decision, p. 11. Differences between total production and total shipments (see Exbibit 2) represent adjustments to Tio inventory Only Du Pont had chloride process production using low-grade feedstock: all others used high-grade feedstock. Exhibit 4 TiO, Market Forecasts under Alternative Strategies for Du Pont, 1973-1985 j H Type here to search 99+ ? OOO 10 3:46 PM 1/13/2021 28 PDE XANEDU PDF.pdf + File D:/XANEDU%20PDF.pdf lo it + DePaul University... * Credit CARD Act of... C Consumer Financial... A New folder Lozano Early Spring... Imported from Inte... A Other favorites O 25 of 162 + A' Read aloud | Draw Highlight Erase Exhibiti Five-year Financial Summary, 1967-1971 ($ millions, except per share and ratio data) 1971 1970 1969 1968 1967 $3,848 357 $3,618 334 $3.632 356 $3,455 372 $3.079 314 727 677 659 583 7.33 5.00 684 6.86 5.00 47,257 7.62 5.25 47,076 7.99 5.50 6.73 5.00 47,281 46,285 46,158 $1,221 2,002 3,999 $1,100 1,923 3,740 $1,107 1.803 3,453 $ 996 1,738 3,289 $ 874 1.724 3,071 307 3,095 3,402 60.23 143.75 186 2.854 3.040 216 2,964 3,180 57.67 113.38 162 2.697 2,859 125 2.557 2,682 55.53 133.38 53.09 162.75 50.22 163.25 Income Statement Sales Net income Cash flow from operations Earnings per share Dividends per share Average shares outstanding (000) Balance Sheet Net working capital Net property, plant and equipment Total assets Total debt Shareholders' equity Total capital Book value per share Market value per share Capital Sources Cash flow retained External equity financing (net) Debt financing (net) Total capital added Capital Expenditures Key Financial Ratios Growth rate (%) Sales Profits Return on sales (%) Return on equity (%) Current ratio Debt and total capital (%) Price earnings ratio Market value/Book value $ 480 21 91 $ 438 37 30 $ 505 $ 423 35 24 $ 482 $ 391 $ 394 23 37 $ 454 $ 308 19 67 $ 394 $ 454 $ 592 $ 454 $ 471 $ 332 6.4 6.9 5. (4.3) 12.2 18.5 (2.5) (19.3) (0.4) (6.2) ) 9.2 11.3 9.3 11.5 9.8 12.5 10.8 11.3 10.2 12.3 3.5 3.6 3.6 3.6 3.2 9.0 6.8 6.1 5.7 4.7 19.6 2.4 16.5 2.0 17.5 2.4 20.4 3.1 24.2 3.3 a Based on midpoint of the year's trading range for Du Pont's common shares. j Type here to search O o 99+ ? OO 4) 3:45 PM 1/13/2021 27 PDE XANEDU PDF.pdf + File D:/XANEDU%20PDF.pdf O * it + DePaul University... * Credit CARD Act of... C Consumer Financial... A New folder * Lozano Early Spring... Imported from Inte... Other favorites O 27 of 162 + - LAV Read aloud | Draw Highlight > Erase 284-066 -7- Size of Marketa (tons 000) Cost of Pretax New Capacity Operating Expenses ($ per ton) ($ per ton) Average Gross Selling Price ($ per ton) Growth Strategy Du Pont Market Share (%) Du Pont Capacity (tons 000) Maintain Strategy Average Gross Du Pont Selling Price Market Share ($ per ton) (%) Du Pont Capacity (tons 000) 330 390 460 540 640 350 375 400 1973 1974 1975 1976 1977 1978 1979 1980 1981 35 40 45 45 45 45 421 443 752 774 798 822 846 872 898 925 952 981 1,010 1,041 1,072 900 927 955 983 1,013 1,043 1,075 1,107 1.140 1,174 1.210 1.246 1,283 540 580 620 660 690 750 880 950 1,010 1,070 1,130 1,190 1,250 1,310 1,370 1.430 35 40 47 47 51 52 52 55 58 59 61 62 64 555 665 760 890 955 1,015 1,070 1,120 1,170 1.210 1.270 1,320 1,370 475 505 530 552 579 616 645 685 340 350 360 370 381 392 404 416 428 441 455 468 482 45 45 45 45 45 710 740 770 810 850 1982 1983 1984 1985 45 45 Downloaded by EDGAR CRUZ on 104/2021. DePaul University, Professor Jettrey Bieman, Winter 2021 Total demand for TIO, is forecast to grow at 3% annually and is not considered to be very sensitive to price b Pretax operating expense per ton includes depreciation allowances but excludes interest expense. ' Type here to search H O a ? OOO 4) 3:46 PM 1/13/2021 99+ 28 PDE XANEDU PDF.pdf + File D:/XANEDU%20PDF.pdf a * it + DePaul University... * Credit CARD Act of... C Consumer Financial... B New folder i Lozano Early Spring... Imported from Inte... A Other favorites 26 O of 162 + | AV Read aloud | Draw Highlight Erase A 284-066 Exhibit 2 % Domestic TIO, Production Capacity by Firm Total Domestic TO Shipments by Firm, Including Imports 1972 est. 1971 1970 1972 est. 1971 1970 1972 est 1971 000 tons % 000 tons % 000 tons % 000 tons % 000 tons % 000 tons % % $ millions % $ millions Du Pont 325 23 277 33 252 30 220 30 222 31 206 30 100 29 98 NL Industries 27 268 258 32 180 25 209 30 210 31 95 102 102 American Cyanamid 90 10 82 10 90 1180 11 72 10 53 8 40 12 30 SCM 75 9 78 78 9 9 65 9 64 9 58 25 7 26 Guif & Western 70 8 70 70 B 80 8 26 4 30 4 30 9 9 * 11 Kerr-McGee 45 5 39 5 37 5 45 6 37 5 5 31 5 20 6 12 Sherwin-Williams 25 3 27 3 27 3 30 26 4 21 3 10 3 12 PPG - - 18 10 Total (U.S.firms) 960 100 841 100 840 100 680 93 666 94 618 91 320 Imports 16 Total 841 100 840 100 100 ZOZ 100 100 340 10 311 Source: Federal Trade Commission, In the matter of E.I. du Pont de Nemours & Co., Docket No. 9108, Complaint Counsel's Exhibits Nos. CX121A, B; CX223A, B, and CX222. a Excluded exports Thousands of tons shipped. Dollar value of shipments 1970 % S millions 31 100 33 112 10 27 3 13 4 4 16 4 8 31 35 7 8 4 5 2 - 1 92 95 304 100 100 oaded by EDGAR CRUZON 104/2021. DePaul University. Professor Jettrey Bieman, Winter 2021 Exhibit 3 Tio Production by Firm and Type of Process, 1970 (tons 000) Total Production Sulfate Process Chloride Process 43 193 47 48 168 36 9 3 Du Ponto NL Industries American Cyanamid SCM Gulf & Western Kerr-McGee Sherwin-Williams PPG Total 211 229 56 51 33 35 19 10 644 35 19 10 280 364 Source: Federal Trade Commission, in the Matter of E. I. du Pont de Nemours & Co., Docket No. 9108. Initial Decision, p. 11. Differences between total production and total shipments (see Exbibit 2) represent adjustments to Tio inventory Only Du Pont had chloride process production using low-grade feedstock: all others used high-grade feedstock. Exhibit 4 TiO, Market Forecasts under Alternative Strategies for Du Pont, 1973-1985 j H Type here to search 99+ ? OOO 10 3:46 PM 1/13/2021 28 PDE XANEDU PDF.pdf + File D:/XANEDU%20PDF.pdf lo it + DePaul University... * Credit CARD Act of... C Consumer Financial... A New folder Lozano Early Spring... Imported from Inte... A Other favorites O 25 of 162 + A' Read aloud | Draw Highlight Erase Exhibiti Five-year Financial Summary, 1967-1971 ($ millions, except per share and ratio data) 1971 1970 1969 1968 1967 $3,848 357 $3,618 334 $3.632 356 $3,455 372 $3.079 314 727 677 659 583 7.33 5.00 684 6.86 5.00 47,257 7.62 5.25 47,076 7.99 5.50 6.73 5.00 47,281 46,285 46,158 $1,221 2,002 3,999 $1,100 1,923 3,740 $1,107 1.803 3,453 $ 996 1,738 3,289 $ 874 1.724 3,071 307 3,095 3,402 60.23 143.75 186 2.854 3.040 216 2,964 3,180 57.67 113.38 162 2.697 2,859 125 2.557 2,682 55.53 133.38 53.09 162.75 50.22 163.25 Income Statement Sales Net income Cash flow from operations Earnings per share Dividends per share Average shares outstanding (000) Balance Sheet Net working capital Net property, plant and equipment Total assets Total debt Shareholders' equity Total capital Book value per share Market value per share Capital Sources Cash flow retained External equity financing (net) Debt financing (net) Total capital added Capital Expenditures Key Financial Ratios Growth rate (%) Sales Profits Return on sales (%) Return on equity (%) Current ratio Debt and total capital (%) Price earnings ratio Market value/Book value $ 480 21 91 $ 438 37 30 $ 505 $ 423 35 24 $ 482 $ 391 $ 394 23 37 $ 454 $ 308 19 67 $ 394 $ 454 $ 592 $ 454 $ 471 $ 332 6.4 6.9 5. (4.3) 12.2 18.5 (2.5) (19.3) (0.4) (6.2) ) 9.2 11.3 9.3 11.5 9.8 12.5 10.8 11.3 10.2 12.3 3.5 3.6 3.6 3.6 3.2 9.0 6.8 6.1 5.7 4.7 19.6 2.4 16.5 2.0 17.5 2.4 20.4 3.1 24.2 3.3 a Based on midpoint of the year's trading range for Du Pont's common shares. j Type here to search O o 99+ ? OO 4) 3:45 PM 1/13/2021 27