AppendixA:

NPVvsDiscountRate:Merseysidevs.Rotterdam

$60

$50

NPVMerseyside(in$MM)

NPV(DCF)in$MM

$40

NPVRotterdam(in$MM)
NPVRotterdam NoLandSale

Incremental
IRR:
3.1%

$30

VictoriaChemicalsDiscountRate

$20

RotterdamIRR:
15.0%w/landsale
10.5%without

$10

MerseysideIRR:
19.5%

$0
0%

($10)

5%

10%

15%

DiscountRate(%)

20%

25%

30%

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
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%

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
4.09
Old WIP inventory
4.48
Incremental WIP inventory
-0.39
3. Estimate of Incremental Depreciation
New Depreciation
1.60
4. Overhead
0.42
5. Prelim. Engineering Costs
0.00
Pretax Incremental Profit
0 30
0.30
6. Cash Flow Adjustments
Less Capital Expend -12.00
Add back Depreciation
1.60
Less Added WIP inventory
0.39
7. Free Cash Flow
-12.00
2.20
-12.00
-9.80
Payback =
4.14
NPV =
10.62
IRR =
24.1%
Earnings Per Share
(0.129)
0.024
Average EPS
0.0208
8. Adjustment for erosion in Rotterdam volume:
Lost Rottendam Output
0
Lost Rottendam Revenue
0
Lost Rottendam Gross Profits
0
Lost Gross Profits after Taxes
0
Change in Rottendam Inventory
0.00
Total Effect on Free Cash Flow
0.00
DCF, Erosion Rottend
($3.99)
Cash flows after erosi
Payback =
NPV =
IRR =
Earning per Share
Average EPS

-12.00
2.20
-12.00
-9.80
4.50 years
6.63
19.5%
(0.129)
0.024
0.015

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

Exhibit 2
VICTORIA CHEMICALS (A)
Frank Greystock's DCF Analysis of Merseyside Project
(financial values in millions of British pounds)

Shares of Stock

8
2015
267,500
180.56
13.3%
23.92

9
2016
267,500
180.56
13.3%
23.92

92,891,240

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

0.55
0.42

0.55
0.42

0.55
0.42

0.55
0.42

0.55
0.42

0.55
0.42

0.55
0.42

3 61
3.61

3 80
3.80

3 96
3.96

4 10
4.10

3 32
3.32

3 42
3.42

3 51
3.51

3 55
3.55

3 55
3.55

2 20
2.20

2 20
2.20

2 20
2.20

2 20
2.20

2 20
2.20

1.39
-0.58
3.33
-6.47

-2.00
1.20
0.00
1.86
-4.61

1.04
0.00
3.81
-0.79

2.00
0.90
0.00
5.77
4.98

0.78
-0.03
3.08

0.68
0.00
3.07

0.59
0.00
3.05

0.55
0.00
3.03

0.55
0.00
3.03

0.55
-0.04
2.04

0.55
0.00
2.08

0.55
0.00
2.08

0.55
0.00
2.08

0.55
0.26
2.34

0.036

0.020

0.041

0.062

0.033

0.033

0.033

0.033

0.033

0.022

0.022

0.022

0.022

0.025

17,500
11.81
1.36
0.95
0.35
-0.60

17,500
11.81
1.36
0.95
0.35
-0.60

17,500
11.81
1.36
0.95
0.35
-0.60

17,500
11.81
1.36
0.95
0.35
-0.60

17,500
11.81
1.36
0.95
0.35
-0.60

17,500
11.81
1.36
0.95
0.35
-0.60

17,500
11.81
1.36
0.95
0.35
-0.60

17,500
11.81
1.36
0.95
0.35
-0.60

17,500
11.81
1.36
0.95
0.35
-0.60

17,500
11.81
1.36
0.95
0.35
-0.60

17,500
11.81
1.36
0.95
0.35
-0.60

17,500
11.81
1.36
0.95
0.35
-0.60

17,500
11.81
1.36
0.95
0.35
-0.60

17,500
11.81
1.36
0.95
0.35
-0.60

2.74
-7.06

1.26
-5.80

3.22
-2.58

5.18
2.59

2.48

2.48

2.45

2.44

2.44

1.45

1.49

1.49

1.49

1.75

0.029

0.014

0.035

0.056

0.027

0.027

0.026

0.026

0.026

0.016

0.016

0.016

0.016

0.019

Assumptions
Annual Output (metric tons)
Output Gain Per Year/Prior Year
Maximum Possible Output
Price/ton (pounds sterling)
Inflation (prices and costs)
Gross Margin Growth Rate/Year
Maximum Possible Gross Margin
Gross Margin
Tax Rate
Investment Outlay (millions)

Now
2008
2009
2010

250,000
2.0%
267,500
675
0.0%
0.50%
15.0%
11.5%
30.0%
3.5
5
1
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

0
1
2
Year
Now
2008
2009
1. Estimate of Incremental Gross Profit
New Output
255,000 260,100
Lost Output--Construction
(106,250) (86,700)
New Sales (Millions)
100.41
117.05
New Gross Margin
11.5%
12.0%
New Gross Profit
11.55
14.05
Old Output
Old Sales
Old Gross Profit
Incremental Gross Profit
2. Estimate of Incremental Depreciation
Yr. 1 Outlays
Yr. 2 Outlays
Yr. 3 Outlays
Total, New Depreciation
3. Overhead
4. Pretax Incremental Profit
5. Tax Expense
6. After-tax Profit
7. Cash Flow Adjustments
Add back Depreciation
Less added WIP inventory
Capital Spending
3.50
Terminal Value, land
8. Free Cash Flow
(3.50)
(3.50)
DCF, Rotterdam =
3.74
IRR, Rotterdam =
12.5%
Earnings Per Share
(0.04)
Average EPS
0.0238
Payback
8.25

250,000 250,000
168.75
168.75
19.41
19.41
(7.86)
(5.36)
0.67

0.58
0.14

0.67
0.12
(8.65)
(2.59)
(6.05)

4
2011

5
2012

6
2013

7
2014

Exhibit 1
VICTORIA CHEMICALS (B)
ANALYSIS OF ROTTERDAM PROJECT
(financial values in millions of British pounds)

Shares

8
2015

9
2016

10
2017

11
2018

92,891,240

12
2019

13
2020

14
2021

15
2022

265,302 267,500 267,500 267,500 267,500 267,500 267,500 267,500 267,500 267,500 267,500 267,500 267,500
(66,326)
134.31
180.56
180.56
180.56
180.56
180.56
180.56
180.56
180.56
180.56
180.56
180.56
180.56
12.5%
13.0%
13.5%
14.0%
14.5%
15.0%
15.0%
15.0%
15.0%
15.0%
15.0%
15.0%
15.0%
16.79
23.47
24.38
25.28
26.18
27.08
27.08
27.08
27.08
27.08
27.08
27.08
27.08
250,000 250,000
168.75
168.75
19.41
19.41
(2.62)
4.07

250,000
168.75
19.41
4.97

250,000
168.75
19.41
5.87

250,000
168.75
19.41
6.78

250,000
168.75
19.41
7.68

250,000
168.75
19.41
7.68

250,000
168.75
19.41
7.68

250,000
168.75
19.41
7.68

250,000
168.75
19.41
7.68

250,000
168.75
19.41
7.68

250,000
168.75
19.41
7.68

250,000
168.75
19.41
7.68

0.72
0.30
(6.38)
(1.91)
(4.47)

0.50
0.12
0.15
0.78
0.33
(3.73)
(1.12)
(2.61)

0.43
0.10
0.13
0.67
0.37
3.03
0.91
2.12

0.38
0.09
0.11
0.58
0.37
4.03
1.21
2.82

0.33
0.08
0.09
0.50
0.37
5.01
1.50
3.51

0.28
0.07
0.08
0.43
0.37
5.98
1.79
4.19

0.24
0.06
0.07
0.37
0.37
6.94
2.08
4.86

0.23
0.05
0.06
0.33
0.37
6.98
2.09
4.88

0.23
0.05
0.05
0.33
0.37
6.98
2.09
4.89

0.23
0.05
0.05
0.33
0.37
6.98
2.09
4.89

0.23
0.05
0.05
0.33
0.37
6.98
2.09
4.89

0.23
0.05
0.05
0.33
0.37
6.98
2.09
4.89

0.23
0.05
0.05
0.33
0.37
6.98
2.09
4.89

0.23
0.05
0.05
0.33
0.37
6.98
2.09
4.89

0.67
1.81
5.00
(12.20)
(15.70)

0.72
(0.42)
1.00
(4.32)
(20.02)

0.78
(0.44)
1.00
(2.40)
(22.42)

0.67
(1.19)

0.58
0.03

0.50
0.03

0.43
0.03

0.37
0.03

0.33
-

0.33
-

0.33
-

0.33
-

0.33
-

0.33
-

0.33
0.12

3.98
(18.44)

3.37
(15.07)

3.98
(11.10)

4.59
(6.51)

5.20
(1.31)

5.22
3.91

5.22

5.22

5.22

5.22

5.22

5.34

(0.13)

(0.05)

(0.03)

0.04

0.04

0.04

0.05

0.06

0.06

0.06

0.06

0.06

0.06

0.06

0.06

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
(3.05)
Cash flows after erosion

3
2010

2008
2009
2010
2011

10.0%
15
3.5%
0
3.0%
40
5
4
3
0

(3.50)
(12.20)
(3.50)
(15.70)
DCF, Rotterdam Adjusted for Full Erosion
at Merseyside =
0.69
IRR
10.5%
Earnings Per Share
(0.04)
(0.13)
Average EPS
0.0190
Payback
8.93

17,500
11.81
1.36
0.95
0.35
(0.60)

17,500
11.81
1.36
0.95
0.35
(0.60)

17,500
11.81
1.36
0.95
0.35
(0.60)

17,500
11.81
1.36
0.95
0.35
(0.60)

17,500
11.81
1.36
0.95
0.35
(0.60)

17,500
11.81
1.36
0.95
0.35
(0.60)

17,500
11.81
1.36
0.95
0.35
(0.60)

17,500
11.81
1.36
0.95
0.35
(0.60)

17,500
11.81
1.36
0.95
0.35
(0.60)

17,500
11.81
1.36
0.95
0.35
(0.60)

17,500
11.81
1.36
0.95
0.35
(0.60)

17,500
11.81
1.36
0.95
0.35
(0.60)

(4.32)
(20.02)

(2.40)
(22.42)

3.38
(19.04)

2.77
(16.27)

3.38
(12.89)

3.99
(8.90)

4.60
(4.29)

4.62
0.33

4.62

4.62

4.62

4.62

4.62

4.74

(0.05)

(0.03)

0.04

0.03

0.04

0.04

0.05

0.05

0.05

0.05

0.05

0.05

0.05

0.05