Article: : Diamond Chemicals PLC, the Merseyside Project

Summary

Purpose of the Article:

The purpose of the article is to investigate the feasibility of a capital project proposed by Morris who is a plant manager at Diamond Chemicals Merseyside Works in Liverpool. There is a total of £9 million expenditure involved to renovate and rationalize the polypropylene production line.

Scope of the Article:

The proposed expenditure would decrease the energy requirements and increase the manufacturing capability. The entire polymerization line will have be closed for 45 days opening a window for competitors.

Classification of the Article:

Descriptive.

Findings or Inferences of the Article:

According to Morris, the project would decrease the energy consumption and increase the productivity. In addition, Morris believes that the proposed expenditure would meet all four criterial under the Engineering Efficiency category. This category is one of the four items on the senior management approval list for the initiation of new projects.

First, it would add to each share or earning per share (EPS) a total of £0.018.

Second, the payback period is 3.6 years which is less than the standard six year.

Third, the net present value is positive i.e. £9.0 million.

Fourth, internal rate of return (IRR) is 25.9 percent which is greater than 10 percent as suggested by the senior management.

Greystock on the other hand believes that the proposed energy saving would come down to 0.75 percent in year 6-10 and without adding aggressive “green” spending, the energy consumption would get back to the old level hence the savings would be negligible.

The transportation division, Intermediate Chemicals Group (ICG) sales and marketing department, assistant plant manager and the treasury staff have also valid concerns according to Greystock.

 

Purpose of the Article:

The purpose of the article is to investigate the feasibility of a capital project proposed by Morris who is a plant manager at Diamond Chemicals Merseyside Works in Liverpool. There is a total of £9 million expenditure involved to renovate and rationalize the polypropylene production line.

Scope of the Article:

The proposed expenditure would decrease the energy requirements and increase the manufacturing capability. The entire polymerization line will have be closed for 45 days opening a window for competitors.

Classification of the Article:

Descriptive.

Findings or Inferences of the Article:

According to Morris, the project would decrease the energy consumption and increase the productivity. In addition, Morris believes that the proposed expenditure would meet all four criterial under the Engineering Efficiency category. This category is one of the four items on the senior management approval list for the initiation of new projects.

First, it would add to each share or earning per share (EPS) a total of £0.018.

Second, the payback period is 3.6 years which is less than the standard six year.

Third, the net present value is positive i.e. £9.0 million.

Fourth, internal rate of return (IRR) is 25.9 percent which is greater than 10 percent as suggested by the senior management.

Greystock on the other hand believes that the proposed energy saving would come down to 0.75 percent in year 6-10 and without adding aggressive “green” spending, the energy consumption would get back to the old level hence the savings would be negligible.

The transportation division, Intermediate Chemicals Group (ICG) sales and marketing department, assistant plant manager and the treasury staff have also valid concerns according to Greystock.