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Merseyside:

Has the flexibility option of:


1. Ease of doing up-grade of existing technologies. This is because the project in
Merseyside only makes improvements to facilities that already exist.
2. There are opportunities to apply technology from Germany within the next five
years. This is because the existence of Lucy Morris hopes that the technology from
Germany will be the technology that is superior Japanese technology.

Rotterdam:
1. Improvements in gas supply line of polypropylene that were using the railway
facilities which must go through three refineries to provide gas for a single refinery.
This gives the assurance of continuous supply for the plant in Rotterdam.
2. Supply through pipe line project includes the right of way for 3.5 million; it is
the price when the sale has reached 6 million. According to a consultant, the
selling price in the next 15 years will reach 35 million.
3. Application of technology from Japan that has been proven over 3 years to
provide increased output and reduced costs and save energy. Besides, there are
opportunities in the application of German technology in Rotterdam project through
an analog process-control system that offers benefits in increased output and
reduced cost compared with a ratio of 1,1:1 technology from Japan that will be
implemented within a period of five years.

A ranking can be used in the determination of mutually exclusive projects, among


others:
Based on the criteria established by Diamond Chemicals, among others: the NPV is
positive, the IRR is greater than the discount rate that is 10%, payback period is a
maximum of six years, and EPS is positive and which provide strategic factors.

Merseyside Rotterdam
Strengths Receive positive cash flows Polymerization process becomes
immediately continuous

Higher cash flows in the beginning Flexible payment schedule (over


4 yr. Old)
Relatively short payback period
Japanese technology proven
Can wait to see if German successful in Japan
technology will be better than
Japanese technology Propylene gas pipeline option
decreased need for railroad tank
car transportation

Weaknesse Production process is old & not Lack of flexibility option


s continuous at times
Committed to project
Higher labor costs
If better technology is developed
cannot integrate it

Opportunit Modernization Land value


ies
Increased output/Lower costs Use of right of way

Higher market share Future sale of right of way

Increased competitiveness

Technology flexibility

Threats 45-day facility closure will cause German technology


customers to purchase from
competitors Loss of right of way

Will have to compete to regain lost Lost cash flows from not
market share implementing the Japanese
technology
Obsolescence of technology

Flexibility

Merseyside is the project with a positive free cash flow and faster project payback
period of 3.62 years shorter therefore allowing the Merseyside project to invest in
switching to new technologies.

The flexibility affect the economic attractiveness of Rotterdam project because the
project chance in getting positive free cash flow is faster and the payback period is
shorter so that it becomes an attraction for investors since it is the indication to do
a better investment.

Style of presenting projects:

a. Proposals submitted by each manager:


Elizabeth Eustace in Rotterdam projects:
1. More detailed, consisting of 90 pages of analysis
2. Discussing about the right-of-way for pipeline installation project
3. Strategic factors:
- By applying process control technology from Germany it will lower costs and
increase output that is equal to 1,1:1 to process control technology from Japan
- According to the statement that Elizabeth Eustace, Diamond Chemicals will
become a company leader in implementing new technology
Lucy Morris on Merseyside project:
1. The analysis is shorter
2. Only in volunteer projects to improve facilities and improve the production
process are

(1) relocating and modernizing the tank car unloading area which allows the flow of
the process of becoming shorter.

(2) improve the polymerization tank to obtain a higher pressure.

(3) renovating the factory and save energy

b. The decision will be based on which projects will be able to meet the four criteria
set by Diamond Chemical, NPV, IRR, Payback Period, and EPS as well as strategic
factors. But other than that, the reporting style of Elizabeth on the Rotterdam
project is more detailed and complete, of course, it is also becoming a consideration
in determining which projects will be taken.

Merseyside and Rotterdam Comparison:

Parameter Merseyside Rotterdam Project


Project

NPV Positive 10.9 million 11.48 million

IRR > 10% 24% 16.56%

PAYBACK Max. 6 yrs. 4.25 years 8.72 years


PERIOD

EPS Positive 0.15 0.34

Of the four project selection criteria set by Diamond Chemicals we can see that the
Merseyside project has met all the criteria there. While on the other hand, the
Rotterdam project does not meet the Payback Period criteria. So, I propose to James
Fawn to select Merseyside project. There was also a reason that is included in
strategic factors, namely:
1. Merseyside project has flexibility options that are not owned by the Rotterdam
project so it is easy to upgrade the technology.
2. The existence of uncertainty in the Rotterdam project associated with the use of
German technology in the period of 5 years to come, because the German
technology is still in research stage and not yet proven to be better than the
Japanese technology.
3. The potential loss if the Rotterdam project is not implemented within 6 months is
3.5 million