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Exh ib it 2

VICTORIA CHEMICALS (A)


Fran k Greysto ck's DCF An alysis o f Merseysid e Pro ject

(financial values in millions of British pounds)


Assu m p tio n s
Old Annual Output in tons
Out Gain/Original Output

250000
7.00%
267500
675
0
12.50%
11.50%

New Annual Output in tons


Price Per ton
Inflation Rate
Gross Margin
Old Gross Margin
Earning Savings
1-5years
6-10years
11-15years

Discount Rate
Tax Rate
Investment
Depreciable Life
Salvage Value
WIP Inventory/Cost of goods
Months down
Prelim. Engineering cost
Overhead/Investments

1.25%
0.75%
0.00%

Year

1
2008

Now

1. Estimate of Incremental Gross Profit


New Output (tons)
Lost Output--Construction
New Sales (Millions)
New Gross Margin
New Gross Profit
Old Output
Old Sales (Millions)
Old Gross Profit
Incremental Gross Profit
2. Estimate of Incremental WIP inventory
New WIP inventory
Old WIP inventory
Incremental WIP inventory
3. Estimate of Incremental Depreciation
New Depreciation
More Depreciation
4. Overhead
5. Prelim. Engineering Costs (Sunk Cost)
Pretax Incremental Profit
6. Cash Flow Adjustments
Less Capital Expenditures
Add back Depreciation
Less Added WIP inventory
7. Free Cash Flow

-12.00

NPV =
IRR =

12.01
25.79%

2
2009

3
2010

5
2012

6
2013

4
2011

250,000
168.75
19.41
4.52

250,000
168.75
19.41
4.52

250,000
168.75
19.41
3.16

250,000
168.75
19.41
3.16

250,000
168.75
19.41
3.16

250,000
168.75
19.41
3.16

250,000
168.75
19.41
3.16

4.67
4.48
0.19

4.67
4.48
0.19

4.67
4.48
0.19

4.67
4.48
0.19

4.67
4.48
0.19

4.70
4.48
0.22

4.70
4.48
0.22

4.70
4.48
0.22

4.70
4.48
0.22

4.70
4.48
0.22

4.74
4.48
0.26

4.74
4.48
0.26

4.74
4.48
0.26

4.74
4.48
0.26

4.74
4.48
0.26

1.60

1.39

1.20
0.00

0.90
0.320
0.00

0.78
0.256
0.00

0.68
0.205
0.00

0.59
0.164
0.00

0.51
0.131
0.00

0.44
0.105
0.00

0.57
0.084
0.00

0.57
0.17
0.00

0.57
0.17
0.00

0.57

0.00

1.04
0.400
0.00

0.57

0.00
0.00
0.72

0.00

0.00

4.03

4.22

3.98

4.20

3.48

3.64

3.77

3.88

3.97

2.51

2.42

2.42

2.59

2.59

1.20
0.00
4.16

2.00
1.44
0.00
2.23

1.22
0.00
4.16

1.04
0.03
3.50

0.88
0.00
3.43

0.75
0.00
3.39

0.64
0.00
3.35

0.55
0.00
3.33

0.66
0.04
2.45

0.74
0.00
2.44

0.74
0.00
2.44

0.57
0.00
2.39

0.57
0.00
2.39

1.39
0.00
4.21

IRR
25.79%
-7.20%
-1.85%
2.48%
6.26%
9.67%
12.83%
15.81%
18.65%
21.37%
24.00%
26.55%

Units

12.01 $
25000
50000
75000
100000
125000
150000
175000
200000
225000
250000
275000

500 $
(9.35)
(7.76)
(6.17)
(4.58)
(3.00)
(1.41)
0.18
1.77
3.36
4.95
6.54

525
(9.27)
(7.60)
(5.94)
(4.27)
(2.60)
(0.93)
0.74
2.40
4.07
5.74
7.41

Two way data table


Price
$
550 $
575 $
(9.19)
(9.11)
(7.44)
(7.29)
(5.70)
(5.46)
(3.95)
(3.63)
(2.20)
(1.80)
(0.45)
0.02
1.29
1.85
3.04
3.68
4.79
5.50
6.54
7.33
8.28
9.16

600 $
(9.03)
(7.13)
(5.22)
(3.31)
(1.41)
0.50
2.40
4.31
6.22
8.12
10.03

180.56
13.3%
23.92

625 $
(8.95)
(6.97)
(4.98)
(3.00)
(1.01)
0.98
2.96
4.95
6.93
8.92
10.90

180.56
12.5%
22.57

650 $
(8.87)
(6.81)
(4.74)
(2.68)
(0.61)
1.45
3.52
5.58
7.65
9.71
11.78

267,500
180.56
12.5%
22.57

675
(8.79)
(6.65)
(4.51)
(2.36)
(0.22)
1.93
4.07
6.22
8.36
10.51
12.65

267,500
180.56
12.5%
22.57

267,500

15
2022

250,000
168.75
19.41
4.52

180.56
13.3%
23.92

267,500

14
2021

250,000
168.75
19.41
4.52

180.56
13.3%
23.92

267,500

13
2020

250,000
168.75
19.41
4.52

180.56
13.3%
23.92

267,500

12
2019

250,000
168.75
19.41
5.42

180.56
13.3%
23.92

267,500

11
2018

250,000
168.75
19.41
5.42

180.56
13.8%
24.83

267,500

10
2017

250,000
168.75
19.41
5.42

180.56
13.8%
24.83

267,500

9
2016

250,000
168.75
19.41
5.42

1.60
-0.19
1.91

267,500

8
2015

250,000
168.75
19.41
2.32

180.56
13.8%
24.83

267,500

7
2014

267,500

12.00

25000
50000
75000
100000
125000
150000
175000
200000
225000
250000
275000

2000000
10
0

267,500
(33,438)
157.99
13.8%
21.72

180.56
13.8%
24.83

267,500

10.00%
30.00%
12000000
15
0
3.00%
1.5

180.56
12.5%
22.57

267,500
180.56
12.5%
22.57

Exhibit 2
VICTORIA CHEMICALS (A)
Frank Greystock's DCF Analysis of Merseyside Project
(financial values in millions of British pounds)
Assumptions
New Annual Output
Annual Output (metric tons)
Output Gain/Original Output
Price/ton (pounds sterling)
Inflation Rate (prices and costs)
Gross Margin (ex. Deprec.)
Old Gross Margin
Energy Savings/Sales
Yr. 1-5
Yr. 6-10
Yr. 11-15

250,000
7.0%
675
0.0%
12.50%
11.5%
1.25%
0.75%
0.0%

1
Year
Now
2008
1. Estimate of Incremental Gross Profit
New Output (tons)
267,500
Lost Output--Construction
(33,438)
New Sales (Millions)
157.99
New Gross Margin
13.8%
New Gross Profit
21.72
Old Output
Old Sales
Old Gross Profit
Incremental Gross Profit

250,000
168.75
19.41
2.32

2. Estimate of Incremental WIP inventory


New WIP inventory
4.67
Old WIP inventory
4.48
Incremental WIP inventory
0.19
3. Estimate of Incremental Depreciation
New Depreciation
1.60
4. Overhead
0.42
5. Prelim. Engineering Costs
0.50
Pretax Incremental Profit
-0.20
6. Cash Flow Adjustments
Less Capital Expenditures-12.00
Add back Depreciation
1.60
Less Added WIP inventory
-0.19
7. Free Cash Flow
-12.00
1.27
NPV =
IRR =

10.45
24.04%

Discount rate
Tax Rate
Investment Outlay (mill.)
Depreciable Life (years)
Salvage Value
WIP Inventory/Cost of Goods
Months Downtime, Construction
Preliminary Engineering Costs
Overhead/Investment
2
2009
267,500
180.56
13.8%
24.83

3
2010
267,500
180.56
13.8%
24.83

4
2011
267,500
180.56
13.8%
24.83

5
2012
267,500
180.56
13.8%
24.83

10.0%
30%
12.0
15
0
3.0%
1.5
0.5
3.5%
6
2013
267,500
180.56
13.3%
23.92

7
2014
267,500
180.56
13.3%
23.92

8
2015
267,500
180.56
13.3%
23.92

9
2016
267,500
180.56
13.3%
23.92

10
2017
267,500
180.56
13.3%
23.92

11
2018
267,500
180.56
12.5%
22.57

12
2019
267,500
180.56
12.5%
22.57

13
2020
267,500
180.56
12.5%
22.57

14
2021
267,500
180.56
12.5%
22.57

15
2022
267,500
180.56
12.5%
22.57

250,000
168.75
19.41
5.42

250,000
168.75
19.41
5.42

250,000
168.75
19.41
5.42

250,000
168.75
19.41
5.42

250,000
168.75
19.41
4.52

250,000
168.75
19.41
4.52

250,000
168.75
19.41
4.52

250,000
168.75
19.41
4.52

250,000
168.75
19.41
4.52

250,000
168.75
19.41
3.16

250,000
168.75
19.41
3.16

250,000
168.75
19.41
3.16

250,000
168.75
19.41
3.16

250,000
168.75
19.41
3.16

4.67
4.48
0.19

4.67
4.48
0.19

4.67
4.48
0.19

4.67
4.48
0.19

4.70
4.48
0.22

4.70
4.48
0.22

4.70
4.48
0.22

4.70
4.48
0.22

4.70
4.48
0.22

4.74
4.48
0.26

4.74
4.48
0.26

4.74
4.48
0.26

4.74
4.48
0.26

4.74
4.48
0.26

1.39
0.42

1.20
0.42

1.04
0.42

0.90
0.42

0.78
0.42

0.68
0.42

0.59
0.42

0.51
0.42

0.44
0.42

0.57
0.42

0.57
0.42

0.57
0.42

0.57
0.42

0.57
0.42

3.61

3.80

3.96

4.10

3.32

3.42

3.51

3.59

3.66

2.17

2.17

2.17

2.17

2.17

1.39
0.00
3.92

1.20
0.00
3.86

1.04
0.00
3.81

0.90
0.00
3.77

0.78
-0.03
3.08

0.68
0.00
3.07

0.59
0.00
3.05

0.51
0.00
3.02

0.44
0.00
3.00

0.57
-0.04
2.05

0.57
0.00
2.09

0.57
0.00
2.09

0.57
0.00
2.09

0.57
0.00
2.09