Victoria Chemicals case study

1. Why are the expenses on engineering study & corporate overhead allocation being treated as not relevant in the revised DCF analysis?

2. What is the transport divisions suggestion? Does it have any merit?

3. What is director of sales suggestion? Does it have any merit?

4. Why did the assistant plant manager offer his suggested change? Does it have any merit?

5. Why did the analyst from the Treasury staff mean by his comment about inflation? Do you agree with it?

6. How does Victoria Chemicals evaluate its capital expenditure proposals? What are the incentives and side effects of those four performance hurdles?

7. Any other observations?

The case presents the capital investment decisions under consideration by executives of large chemicals firm in January 2008. The project being evaluated is regarding improvements to a polypropylene production plant. Please compare case Exhibit 2 with Appendix TNI & Exhibit TNI (See attachments) for the adjustments made to produce an acceptable Discounted Cash Flow (DCF) analysis. Please note that Exhibit TNI is NOT the solution to the case, which should not be viewed as the "right" answer. Indeed, there is a large grey area for judgement in capital-expenditure analysis. Please answer the following questions (Please also refer to the case and the textbook chapter 7); 1. Why are the expenses on engineering study & corporate overhead allocation being treated as "not relevant" in the revised DCF analysis? 2. What is the transport division's suggestion? Does it have any merit? 3. What is director of sales' suggestion? Does it have any merit? 4. Why did the assistant plant manager offer his suggested change? Does it have any merit? 5. Why did the analyst from the Treasury staff mean by his comment about inflation? Do you agree with it? 6. How does Victoria Chemicals evaluate its capital expenditure proposals? What are the incentives and side effects of those four performance "hurdles"? 7. Any other observations? The case presents the capital investment decisions under consideration by executives of large chemicals firm in January 2008. The project being evaluated is regarding improvements to a polypropylene production plant. Please compare case Exhibit 2 with Appendix TNI & Exhibit TNI (See attachments) for the adjustments made to produce an acceptable Discounted Cash Flow (DCF) analysis. Please note that Exhibit TNI is NOT the solution to the case, which should not be viewed as the "right" answer. Indeed, there is a large grey area for judgement in capital-expenditure analysis. Please answer the following questions (Please also refer to the case and the textbook chapter 7); 1. Why are the expenses on engineering study & corporate overhead allocation being treated as "not relevant" in the revised DCF analysis? 2. What is the transport division's suggestion? Does it have any merit? 3. What is director of sales' suggestion? Does it have any merit? 4. Why did the assistant plant manager offer his suggested change? Does it have any merit? 5. Why did the analyst from the Treasury staff mean by his comment about inflation? Do you agree with it? 6. How does Victoria Chemicals evaluate its capital expenditure proposals? What are the incentives and side effects of those four performance "hurdles"? 7. Any other observations