Merseyside and Rotterdam projects Essay

I would choose Merseyside draw rather than Rotterdams not only for its superior prospect base on the quantifiable criteria, but also for a more rational strategy consideration. For the quartette investiture criteria, heres the elaboration.NPV. Since the two plants be of identical scale, age, design and similar project size, it makes sense to use NPV to compare the two projects. Not taken into account the erosion at Merseyside, the projected NPV of Rotterdam project is GBP4.49 one million million (GBP15.06 million- GBP10.57 million) higher 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 flow 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 big difference for a 15-year project. Growth in EPS. Calculated as the average annual EPS contribution of the pr oject all over its entire economic life (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 suggest 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 status 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 around the corner. A price competition posterior be foreseen among the top suppliers of polypropylene in Europe, which would require a more liquid financial status of the company. A 7.9-year payback suggested by Rotterdam project might put the company into a chanceful financial situation among fierce competition and the company might even have no cha nce to enjoy the proposed eudaimonias (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 toreceive a green cloudless from the sr. management of the company for the following reasons. 1) The new Japanese process-control technology is still too young to ensure the stable efficiency gains across for each one of the production facilities. Even 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 tried and true for the compatibility for this Japanese technology. Admittedly, the potential success of the Rotterdam project will benefit the company significantly in terms of both market position and financial status, it was based on too many assumptions 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, 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 sell the purchase resource of a pipeline and its right-of-way if the plan didnt work 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 parti-color over time. These factors are difficult to quantify and for investors, who have already cast doubt on the companys financial performance due to the bodily raider Sir David Benjamin, these can exacerbate their unsecure feeling towards the company and thus worsen the projected EPS. 4) Assume 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 installed 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 required by Rotterdam project).Given the facts mentioned, why not choose Merseyside project now and anticipate for two years to see how the market develops and decide whether to install the new control technology that might be more mature and stable at that time? Some may argue that the Merseyside project is too conservative and might jeopardize Victoria Chemicals chance to become the pioneer in exploitation advanced process control technology, however, based on aforementionedanalysis, I believe the Merseyside project will be the right choice at this quantify but the flexibility of adding the techno logy in the future should be retained.