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Model Facts

ECTN.XLS
This spreadsheet supports INSTRUCTOR analysis of the cases,
"Empirical Chemicals (A) & (B)" (UVA -F-1020 and 1021 v. 2.3).
Please note:
1) This is a working model. Assumptions / Inputs presented can be
changed to vary the results.

2) As long as default spreadsheet calculation is "automatic" the impact


of changing assumptions will be computed in real time. If calculation is
set as "manual" you should press the F9 function key to
recalculate results. To set numerical calculation settings to automatic
look under tools, options, calculations menu.

Revised: 3-Jun-98
Copyright (C) 1998 by the Trustees of the University of Virginia Darden School Foundation.

Page 1

Model Facts

chool Foundation.

Page 2

DISCOUNTED CASH FLOW COMPARISON


DCF Results of Base Cases (MM Pounds Sterling)
No Erosion
Full Erosion
Other, Original

Merseyside

Rotterdam,
Excludes
Right-of-Way

Case

DCF (base case)


6.07
5.67
IRR
21.6%
16.7%
WACC Base Case
9.0%
9.0%
6.07
5.67
6.0%
8.73
9.63
7.0%
7.76
8.15
8.0%
6.88
6.84
9.0%
6.07
5.67
10.0%
5.34
4.63
11.0%
4.66
3.69
12.0%
4.04
2.86
13.0%
3.47
2.12
14.0%
2.94
1.45
15.0%
2.45
0.86
16.0%
2.00
0.32
17.0%
1.59
-0.16
18.0%
1.20
-0.59
19.0%
0.84
-0.97
20.0%
0.50
-1.32
N.B.: Grey highlights region of "crossover".
Source: Casewriter analysis.

6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
13.0%
14.0%
15.0%
16.0%
17.0%
18.0%
19.0%
20.0%

TN:
"Memo"

Merseyside

Rotterdam,
Excludes
Right-of-Way

(A) Case,
Exhibit 2

(B) Case,
Exhibit 1

Merseyside,
Original Not
Revised

Rotterdam,
Original With Rotterdam,
Right-ofOriginal With
Way, No
Right-of-Way
Erosion
and Erosion

2.62

3.17

2.36

14.9%
9.0%
2.62
4.56
3.86
3.21
2.62
2.08
1.59
1.13
0.71
0.32
-0.04
-0.38
-0.69
-0.98
-1.24
-1.50

13.5%
9.0%
3.17
6.47
5.24
4.15
3.17
2.31
1.54
0.86
0.25
-0.29
-0.77
-1.20
-1.58
-1.93
-2.23
-2.50

19.2%
13.0%
4.64
6.97
6.12
5.35
4.64
4.00
3.41
2.86
2.36
1.90
1.47
1.08
0.71
0.37
0.05
-0.24

Yes, Erosion
Rott.
Mersey
6.47
4.56
5.24
3.86
4.15
3.21
3.17
2.62
2.31
2.08
1.54
1.59
0.86
1.13
0.25
0.71
-0.29
0.32
-0.77
-0.04
-1.20
-0.38
-1.58
-0.69
-1.93
-0.98
-2.23
-1.24
-2.50
-1.50

NPV of Projects by Discount Rate


(No Erosion at Other Plant)

(B) Case,
Exhibit 1

12.28
17.2%
9.0%
12.28
21.24
17.84
14.87
12.28
10.00
8.01
6.26
4.71
3.36
2.16
1.10
0.16
-0.67
-1.40
-2.05

10.85
16.8%
9.0%
10.85
19.42
16.17
13.33
10.85
8.68
6.78
5.12
3.65
2.37
1.24
0.24
-0.64
-1.42
-2.11
-2.71

NPV

TN: Exh.
TN2

12.00
10.00
8.00
6.00
4.00
2.00
0.00
-2.00

Merseyside
Rotterdam

6%

8%

10%

7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00
-1.00
-2.00
-3.00

Rotterdam
Merseyside

6%

12%

14%

Discount Rate

NPV of Projects by Discount Rate


With Erosion at other Plant

NPV

Where

TN:
"Memo"

8% 10% 12% 14% 16% 18% 20%


Discount Rate

16%

18%

20%

Exhibit 2

UVA-F-1020

EMPIRICAL CHEMICALS (A)

Jim Hawkin's DCF Analysis of Merseyside Project


(Financial values in millions of British Pounds)

Assumptions
Annual Output (metric tons)
Output Gain/Original Output
Price/ton (pounds sterling)
Inflation Rate (prices and costs)
Gross Margin (ex. Deprec.)
Old Gross Margin
Tax Rate
Investment Outlay (mill.)
Energy Savings/Sales
Yr. 1-5
Yr. 6-10
Yr. 11-15

135,000
7.0%
611
0.0%
12.90%
11.5%
35.0%
7.00
1.0%
0.5%
0.0%

1
Year
Now
1992
1. Estimate of Incremental Gross Profit
New Output (tons)
144,450
Lost Output--Construction
(22,500)
New Sales (Millions)
74.51
New Gross Margin
13.9%
New Gross Profit
10.36
Old Output
Old Sales
Old Gross Profit
Incremental Gross Profit

135,000
82.49
9.49
0.87

Discount rate
Depreciable Life (years)
Overhead/Investment
Salvage Value
WIP Inventory/Cost of Goods
Months Downtime, Construction
After-tax Scrap Proceeds
Preliminary Engineering Costs

2
1993
144,450
88.26
13.9%
12.27

3
1994
144,450
88.26
13.9%
12.27

4
1995
144,450
88.26
13.9%
12.27

5
1996
144,450
88.26
13.9%
12.27

9.0%
15
3.5%
0
3.0%
2
0
0.5

6
1997
144,450
88.26
13.4%
11.83

7
1998
144,450
88.26
13.4%
11.83

8
1999
144,450
88.26
13.4%
11.83

9
2000
144,450
88.26
13.4%
11.83

10
2001
144,450
88.26
13.4%
11.83

11
2002
144,450
88.26
12.9%
11.39

12
2003
144,450
88.26
12.9%
11.39

13
2004
144,450
88.26
12.9%
11.39

14
2005
144,450
88.26
12.9%
11.39

15
2006
144,450
88.26
12.9%
11.39

135,000
82.49
9.49
2.78

135,000
82.49
9.49
2.78

135,000
82.49
9.49
2.78

135,000
82.49
9.49
2.78

135,000
82.49
9.49
2.34

135,000
82.49
9.49
2.34

135,000
82.49
9.49
2.34

135,000
82.49
9.49
2.34

135,000
82.49
9.49
2.34

135,000
82.49
9.49
1.90

135,000
82.49
9.49
1.90

135,000
82.49
9.49
1.90

135,000
82.49
9.49
1.90

135,000
82.49
9.49
1.90

0.93
0.25
0.50
-0.81
-0.28

0.81
0.25

0.70
0.25

0.61
0.25

0.53
0.25

0.46
0.25

0.40
0.25

0.34
0.25

0.32
0.25

0.32
0.25

0.32
0.25

0.32
0.25

0.32
0.25

0.32
0.25

0.32
0.25

1.73
0.60

1.84
0.64

1.93
0.68

2.01
0.70

1.64
0.57

1.70
0.60

1.75
0.61

1.78
0.62

1.78
0.62

1.33
0.47

1.33
0.47

1.33
0.47

1.33
0.47

1.33
0.47

7. After-tax Profit
8. Cash Flow Adjustments
Less Capital Expenditures -7.00
Add back Depreciation
Less Added WIP inventory
After-tax Scrap Proceeds

-0.52

1.12

1.19

1.25

1.31

1.07

1.11

1.14

1.15

1.15

0.87

0.87

0.87

0.87

0.87

0.93
0.27
0.00

0.81
-0.36

0.70
0.00

0.61
0.00

0.53
0.00

0.46
0.00

0.40
0.00

0.34
0.00

0.32
0.00

0.32
0.00

0.32
0.00

0.32
0.00

0.32
0.00

0.32
0.00

0.32
0.00

-7.00

0.67

1.58

1.89

1.86

1.83

1.52

1.50

1.48

1.47

1.47

1.19

1.19

1.19

1.19

1.19

2. Estimate of Incremental Depreciation


New Depreciation
3. Overhead
4. Prelim. Engineering Costs
5. Pretax Incremental Profit
6. Tax Expense

8. Free Cash Flow


NPV =
IRR =

4.64
19.2%

Exhibit 1

UVA-F-1021

EMPIRICAL CHEMICALS (B)

ANALYSIS OF ROTTERDAM PROJECT


(Values in British Pounds)

Assum ptions
Annual Output (metric tons)
135,000
Output Gain Per Year/Prior Year
2.0%
Maximum Possible Output
144,450
Price/ton (pounds sterling)
611
Inflation (prices and costs)
0.0%
Gross Margin Growth Rate/Year
0.80%
Maximum Possible Gross Margin
16.5%
Old Gross Margin
11.5%
Tax Rate
35.0%
Investment Outlay (millions)
Now
3
End, 1992
2
1993
1.5
1994
1

Setup and Labor Savings/Sales (yr.1)


Discount rate
Depreciable Life (years)
Overhead/Investment
Salvage Value
WIP Inventory/Cost of Goods Sold
Terminal Value of Right-of-Way
Months Downtime, Construction
1992
1993
1994
1995

0.0%
9.0%
15
3.5%
0
3.0%
35
5
4
3
0

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Year
Now
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
1. Estimate of Incremental Gross Profit
New Output
137,700 140,454 143,263 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450
Lost Output--Construction
(57,375) (46,818) (35,816)
0
New Sales (Millions)
49.08
57.21
65.65
88.26
88.26
88.26
88.26
88.26
88.26
88.26
88.26
88.26
88.26
88.26
88.26
New Gross Margin
11.6%
11.8%
12.1%
12.5%
13.0%
13.6%
14.4%
15.3%
16.5%
16.5%
16.5%
16.5%
16.5%
16.5%
16.5%
New Gross Profit
5.69
6.74
7.92
10.99
11.44
12.00
12.69
13.52
14.53
14.56
14.56
14.56
14.56
14.56
14.56
Old Output
135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000
Old Sales
82.49
82.49
82.49
82.49
82.49
82.49
82.49
82.49
82.49
82.49
82.49
82.49
82.49
82.49
82.49
Old Gross Profit
9.49
9.49
9.49
9.49
9.49
9.49
9.49
9.49
9.49
9.49
9.49
9.49
9.49
9.49
9.49
Incremental Gross Profit
-3.80
-2.75
-1.57
1.51
1.95
2.51
3.20
4.04
5.04
5.08
5.08
5.08
5.08
5.08
5.08
2. Estimate of Incremental Depreciation
Yr. 1 Outlays
0.27
0.23
0.20
0.17
0.15
0.13
0.11
0.10
0.10
0.09
0.09
0.09
0.09
0.09
0.09
Yr. 2 Outlays
0.21
0.18
0.16
0.13
0.12
0.10
0.08
0.08
0.08
0.07
0.07
0.07
0.07
0.07
Yr. 3 Outlays
0.15
0.13
0.11
0.09
0.08
0.07
0.06
0.06
0.05
0.05
0.05
0.05
0.05
Total, New Depreciation
0.27
0.45
0.54
0.46
0.40
0.34
0.29
0.25
0.24
0.23
0.21
0.21
0.21
0.21
0.21
3. Overhead
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
4. Pretax Incremental Profit
-4.06
-3.19
-2.10
1.04
1.56
2.17
2.91
3.79
4.80
4.85
4.87
4.87
4.87
4.87
4.87
5. Tax Expense
-1.42
-1.12
-0.74
0.37
0.54
0.76
1.02
1.33
1.68
1.70
1.70
1.70
1.70
1.70
1.70
6. After-tax Profit
-2.64
-2.08
-1.37
0.68
1.01
1.41
1.89
2.46
3.12
3.15
3.16
3.16
3.16
3.16
3.16
7. Cash Flow Adjustments
Add back Depreciation
0.27
0.45
0.54
0.46
0.40
0.34
0.29
0.25
0.24
0.23
0.21
0.21
0.21
0.21
0.21
Less added WIP inventory
0.89
-0.21
-0.22
-0.59
0.01
0.02
0.02
0.03
0.03
0.00
0.00
0.00
0.00
0.00
0.00
Capital Spending
3.00
2.00
1.50
1.00
Terminal Value, land
35.00
8. Free Cash Flow
-3.00
-5.26
-2.92
-1.61
1.73
1.39
1.74
2.16
2.69
3.33
3.38
3.37
3.37
3.37
3.37
38.37
DCF, Rotterdam =
12.28
IR, Rotterdam =
17.2%
9. Adjustment for erosion in Merseyside volume:
Lost Merseyside Output
Lost Merseyside Revenue
Lost Merseyside Gross Profits
Lost Gross Profits after Taxes
Change in Merseyside Inventory
Total Effect on Free Cash Flow
DCF, Erosion Merseyside
(1.43)
DCF, Rotterdam Adjusted for Full
Erosion at Merseyside =
10.85

9,450
5.77
0.66
0.43
0.17
(0.26)

9,450
5.77
0.66
0.43
0.17
(0.26)

9,450
5.77
0.66
0.43
0.17
(0.26)

9,450
5.77
0.66
0.43
0.17
(0.26)

9,450
5.77
0.66
0.43
0.17
(0.26)

9,450
5.77
0.66
0.43
0.17
(0.26)

9,450
5.77
0.66
0.43
0.17
(0.26)

9,450
5.77
0.66
0.43
0.17
(0.26)

9,450
5.77
0.66
0.43
0.17
(0.26)

9,450
5.77
0.66
0.43
0.17
(0.26)

9,450
5.77
0.66
0.43
0.17
(0.26)

9,450
5.77
0.66
0.43
0.17
(0.26)

Merseyside Proposal: Part A


(Reflects charge for full erosion
of Rotterdam business volume)

Assumptions
Annual Output (metric tons)
Output Gain/Original Output
Price/ton (pounds sterling)
Inflation (prices and costs)
Gross Margin (ex. Deprec.)
Old Gross Margin
Tax Rate
Investment Outlay (mill.) - Plant
Investment in Tank Cars
Energy Savings/Sales
Yr. 1-5
Yr. 6-10
Yr. 11-15

Year

135,000
7.0%
611.00
0.0%
12.9%
11.5%
35.0%
7
2.0
1.0%
0.5%
0.0%

1
1992

Now

Discount rate
Depreciable Life (years) Plant
Depreciable Life (yrs.) Tank Cars
Overhead/Investment
Salvage Value
WIP Inventory/Cost of Goods
Months Downtime, Construction
After-tax Scrap Proceeds

2
1993

3
1994

4
1995

5
1996

9.0%
15
10
3.5%
0
3.0%
2
0

6
1997

7
1998

8
1999

9
2000

10
2001

11
2002

12
2003

13
2004

14
2005

15
2006

1. Estimate of Incremental Gross Profit


New Output
144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450
Lost Output--Construction
(22,500)
New Sales (Millions)
74.51
88.26
88.26
88.26
88.26
88.26
88.26
88.26
88.26
88.26
88.26
88.26
88.26
88.26
88.26
New Gross Margin
13.9%
13.9%
13.9%
13.9%
13.9%
13.4%
13.4%
13.4%
13.4%
13.4%
12.9%
12.9%
12.9%
12.9%
12.9%
New Gross Profit
10.36
12.27
12.27
12.27
12.27
11.83
11.83
11.83
11.83
11.83
11.39
11.39
11.39
11.39
11.39
Old Output
Old Sales
Old Gross Profit

135,000
82.49
9.49

135,000
82.49
9.49

135,000
82.49
9.49

135,000
82.49
9.49

135,000
82.49
9.49

135,000
82.49
9.49

135,000
82.49
9.49

135,000
82.49
9.49

135,000
82.49
9.49

135,000
82.49
9.49

135,000
82.49
9.49

135,000
82.49
9.49

135,000
82.49
9.49

135,000
82.49
9.49

135,000
82.49
9.49

9,450
5.77
0.66

9,450
5.77
0.66

9,450
5.77
0.66

9,450
5.77
0.66

9,450
5.77
0.66

9,450
5.77
0.66

9,450
5.77
0.66

9,450
5.77
0.66

9,450
5.77
0.66

9,450
5.77
0.66

9,450
5.77
0.66

9,450
5.77
0.66

9,450
5.77
0.66

9,450
5.77
0.66

9,450
5.77
0.66

0.21

2.12

2.12

2.12

2.12

1.68

1.68

1.68

1.68

1.68

1.24

1.24

1.24

1.24

1.24

0.93

0.81

0.70
0.40

0.61
0.32

0.93

0.81

1.10

0.93

0.53
0.26
0.40
0.38

0.46
0.20
0.32
0.34

0.40
0.16
0.26
0.30

0.34
0.13
0.20
0.27

0.32
0.13
0.16
0.29

0.32
0.13
0.13
0.32

0.32
0.13
0.13
0.32

0.32
0.13
0.13
0.32

0.32
0.00
0.13
0.19

0.32
0.00
0.13
0.19

0.32
0.00
0.00
0.32

-0.73
-0.25
-0.47

1.31
0.46
0.85

1.02
0.36
0.66

1.19
0.42
0.77

1.74
0.61
1.13

1.34
0.47
0.87

1.37
0.48
0.89

1.41
0.49
0.92

1.39
0.49
0.90

1.36
0.48
0.88

0.92
0.32
0.60

0.92
0.32
0.60

1.05
0.37
0.68

1.05
0.37
0.68

0.92
0.32
0.60

0.93

0.81

1.10

0.93

0.38

0.34

0.30

0.27

0.29

0.32

0.32

0.32

0.19

0.19

0.32

0.27
-0.27

-0.36
0.36

0.00
0.00
-2.00

0.00
0.00

0.00
0.00
2.00

0.00
0.00

0.00
0.00

0.00
0.00

0.00
0.00

0.00
0.00

0.00
0.00

0.00
0.00

0.00
0.00

0.00
0.00

0.09
-0.09

0.46

1.66

-0.24

1.70

3.51

1.21

1.20

1.18

1.19

1.20

0.92

0.92

0.87

0.87

0.92

Lost Rotterdam Output (MT)


Lost Revenue
Lost Rotterdam Gross Profit
Incremental Gross Profit
2. Estimate of Incremental Depreciation
+ New Depreciation, Plant
+ New Depreciation,Tank Cars
- Old Depreciation, Tank Cars
Total Change in Depreciation
3. Pretax Incremental Profit
4. Tax Expense
5. After-tax Profit
6. Cash Flow Adjustments
Add back Depreciation
Change in WIP Inventory
At Merseyside
At Rotterdam
Capital Investment
After-tax Scrap Proceeds
7. Free Cash Flow
NPV =
IRR =

-7.00

0.00

-7.00
2.62
14.9%

Merseyside Proposal: Part B


(Reflects no charge for erosion
of Rotterdam business volume)

Assumptions
Annual Output (metric tons)
Output Gain/Original Output
Price/ton (pounds sterling)
Inflation (prices and costs)
Gross Margin (ex. Deprec.)
Old Gross Margin
Tax Rate
Investment Outlay (mill.) - Plant
Investment in Tank Cars
Energy Savings/Sales
Yr. 1-5
Yr. 6-10
Yr. 11-15

135,000
7.0%
611
0.0%
12.9%
11.5%
35.0%
7
2
1.0%
0.5%
0.0%

Discount rate
Depreciable Life (years) Plant
Depreciable Life (yrs.) Tank Cars
Overhead/Investment
Salvage Value
WIP Inventory/Cost of Goods Sold
Months Downtime, Construction
After-tax Scrap Proceeds

9.0%
15
10
3.5%
0.0%
3.0%
2
0

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Year
Nos
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
1. Estimate of Incremental Gross Profit
New Output
144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450
Lost Output--Construction
(22,500)
New Sales (Millions)
74.51
88.26
88.26
88.26
88.26
88.26
88.26
88.26
88.26
88.26
88.26
88.26
88.26
88.26
88.26
New Gross Margin
13.9%
13.9%
13.9%
13.9%
13.9%
13.4%
13.4%
13.4%
13.4%
13.4%
12.9%
12.9%
12.9%
12.9%
12.9%
New Gross Profit
10.36
12.27
12.27
12.27
12.27
11.83
11.83
11.83
11.83
11.83
11.39
11.39
11.39
11.39
11.39
Old Output
Old Sales
Old Gross Profit
Incremental Gross Profit
2. Estimate of Incremental Depreciation
+ New Depreciation-Plant
+ New Depreciation, Tank Cars
- Old Depreciation, Tank Cars
Total Change in Depreciation
4. Pretax Incremental Profit
5. Tax Expense
6. After-tax Profit
7. Cash Flow Adjustments
Add back Depreciation
Added WIP inventory
Capital Investment
After-tax Scrap Proceeds
8. Free Cash Flow
DCF =
IRR =

135,000
82.49
9.49
0.87

135,000
82.49
9.49
2.78

135,000
82.49
9.49
2.78

135,000
82.49
9.49
2.78

135,000
82.49
9.49
2.78

135,000
82.49
9.49
2.34

135,000
82.49
9.49
2.34

135,000
82.49
9.49
2.34

135,000
82.49
9.49
2.34

135,000
82.49
9.49
2.34

135,000
82.49
9.49
1.90

135,000
82.49
9.49
1.90

135,000
82.49
9.49
1.90

135,000
82.49
9.49
1.90

135,000
82.49
9.49
1.90

0.93

0.81

0.70
0.40

0.61
0.32

0.93

0.81

1.10

0.93

0.53
0.26
0.40
0.38

0.46
0.20
0.32
0.34

0.40
0.16
0.26
0.30

0.34
0.13
0.20
0.27

0.32
0.13
0.16
0.29

0.32
0.13
0.13
0.32

0.32
0.13
0.13
0.32

0.32
0.13
0.13
0.32

0.32
0.00
0.13
0.19

0.32
0.00
0.13
0.19

0.32
0.00
0.00
0.32

-0.06
-0.02
-0.04

1.97
0.69
1.28

1.68
0.59
1.09

1.85
0.65
1.21

2.40
0.84
1.56

2.00
0.70
1.30

2.04
0.71
1.32

2.07
0.73
1.35

2.05
0.72
1.34

2.02
0.71
1.31

1.58
0.55
1.03

1.58
0.55
1.03

1.71
0.60
1.11

1.71
0.60
1.11

1.58
0.55
1.03

0.93
0.27

0.81
-0.36

1.10
0.00
-2.00

0.93
0.00

0.38
0.00
2.00

0.34
0.00

0.30
0.00

0.27
0.00

0.29
0.00

0.32
0.00

0.32
0.00

0.32
0.00

0.19
0.00

0.19
0.00

0.32
0.09

1.74

0.19

2.13

3.94

1.64

1.63

1.62

1.62

1.63

1.35

1.35

1.30

1.30

1.44

-7.00
0.00

-7.00
6.07
21.6%

1.16

Exh. TN2

Exhibit TN2

UVA-F-1020TN

EMPIRICAL CHEMICALS (TN)

ANALYSIS OF ROTTERDAM PROJECT


Excluding Impact of the Right-of-Way Investment
(Financial values in millions of British Pounds)

Assumptions
Annual Output (metric tons)
135,000
Output Gain Per Year/Prior Year
2.0%
Maximum Possible Output
144,450
Price/ton (pounds sterling)
611
Inflation (prices and costs)
0.0%
Gross Margin Growth Rate Per Year
0.80%
Maximum Possible Gross Margin
16.5%
Old Gross Margin
11.5%
Tax Rate
35.0%
Investment Outlay (millions) Now
0
End, 1992
2
1993
1.5
1994
1
1
2
Year
1992
1993
1. Estimate of Incremental Gross Profit
New Output
137,700 140,454
Lost Output--Construction
(57,375) (46,818)
New Sales (Millions)
49.08
57.21
New Gross Margin
11.6%
11.8%
New Gross Profit
5.69
6.74

Setup and Labor Savings/Sales (yr.1)


Discount rate
Depreciable Life (years)
Overhead/Investment
Salvage Value
WIP Inventory/Cost of Goods Sold
Terminal Value of Right-of-Way
Months Downtime, Construction
1992
1993
1994
1995

3
1994

4
1995

5
1996

6
1997

0.0%
9.0%
15
3.5%
0
3.0%
0
5
4
3
0

7
1998

8
1999

9
2000

10
2001

11
2002

12
2003

13
2004

14
2005

15
2006
17

143,263 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450
(35,816)
0
65.65
88.26
88.26
88.26
88.26
88.26
88.26
88.26
88.26
88.26
88.26
88.26
88.26
12.1%
12.5%
13.0%
13.6%
14.4%
15.3%
16.5%
16.5%
16.5%
16.5%
16.5%
16.5%
16.5%
7.92
10.99
11.44
12.00
12.69
13.52
14.53
14.56
14.56
14.56
14.56
14.56
14.56

Old Output
135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000
Old Sales
82.49
82.49
82.49
82.49
82.49
82.49
82.49
82.49
82.49
82.49
82.49
82.49
82.49
82.49
82.49
Old Gross Profit
9.49
9.49
9.49
9.49
9.49
9.49
9.49
9.49
9.49
9.49
9.49
9.49
9.49
9.49
9.49
Incremental Gross Profit
-3.80
-2.75
-1.57
1.51
1.95
2.51
3.20
4.04
5.04
5.08
5.08
5.08
5.08
5.08
5.08
2. Estimate of Incremental Depreciation
Yr. 1 Outlays
0.27
0.23
0.20
0.17
0.15
0.13
0.11
0.10
0.10
0.09
0.09
0.09
0.09
0.09
0.09
Yr. 2 Outlays
0.21
0.18
0.16
0.13
0.12
0.10
0.08
0.08
0.08
0.07
0.07
0.07
0.07
0.07
Yr. 3 Outlays
0.15
0.13
0.11
0.09
0.08
0.07
0.06
0.06
0.05
0.05
0.05
0.05
0.05
Total, New Depreciation
0.27
0.45
0.54
0.46
0.40
0.34
0.29
0.25
0.24
0.23
0.21
0.21
0.21
0.21
0.21
3. Overhead
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
4. Pretax Incremental Profit
-4.06
-3.19
-2.10
1.04
1.56
2.17
2.91
3.79
4.80
4.85
4.87
4.87
4.87
4.87
4.87
5. Tax Expense
-1.42
-1.12
-0.74
0.37
0.54
0.76
1.02
1.33
1.68
1.70
1.70
1.70
1.70
1.70
1.70
6. After-tax Profit
-2.64
-2.08
-1.37
0.68
1.01
1.41
1.89
2.46
3.12
3.15
3.16
3.16
3.16
3.16
3.16
7. Cash Flow Adjustments
Add back Depreciation
0.27
0.45
0.54
0.46
0.40
0.34
0.29
0.25
0.24
0.23
0.21
0.21
0.21
0.21
0.21
Less added WIP inventory
0.89
-0.21
-0.22
-0.59
0.01
0.02
0.02
0.03
0.03
0.00
0.00
0.00
0.00
0.00
0.00
Capital Spending
0.00
2.00
1.50
1.00
Terminal Value, land
8. FCF, Zero Erosion
0.00
-5.26
-2.92
-1.61
1.73
1.39
1.74
2.16
2.69
3.33
3.38
3.37
3.37
3.37
3.37
3.37
DCF, no erosion =
5.67
IRR, no erosion =
16.7%
9. Adjustment for full erosion in Merseyside volume:
Lost Merseyside Output
Lost Merseyside Revenue
Lost Merseyside Gross Profits
Lost Gross Profits after Taxes
Change in Merseyside Inventory
0.00
Total Effect on Free Cash Flow
DCF Erosion Effect
(2.50)
10. Free Cash flows of Rotterdam
After erosion:
0.00
-5.26
DCF of Rotterdam Project Adjusted for Full Erosion
at Merseyside =
3.17
IRR, full erosion =
13.5%

0.00
-

0.00
-

-2.92

-1.61

9,450
5.77
0.66
0.43
-0.15
(0.58)

9,450
5.77
0.66
0.43
0.00
(0.43)

9,450
5.77
0.66
0.43
0.00
(0.43)

9,450
5.77
0.66
0.43
0.00
(0.43)

9,450
5.77
0.66
0.43
0.00
(0.43)

9,450
5.77
0.66
0.43
0.00
(0.43)

9,450
5.77
0.66
0.43
0.00
(0.43)

9,450
5.77
0.66
0.43
0.00
(0.43)

9,450
5.77
0.66
0.43
0.00
(0.43)

9,450
5.77
0.66
0.43
0.00
(0.43)

9,450
5.77
0.66
0.43
0.00
(0.43)

9,450
5.77
0.66
0.43
0.00
(0.43)

1.14

0.96

1.30

1.73

2.25

2.90

2.95

2.94

2.94

2.94

2.94

2.94

Page 8