Case Stoody 2 Essay

Words: 1447
Pages: 6

Case Study No. 1: American Chemical Corporation 1. Briefly provide a synopsis of the case and clearly describe the main problem raised in the case. (10 points)
American Chemical, a diverse chemical company in the late1970s, wanted to acquire, through a share buyout, Universal Paper Corporation. Universal sued them on the stance that it would violate an antitrust law, because its sodium-chlorate production division would digest Universal’s large division creating a lack of competition in the Southeast United States. To alleviate this, American Chemical divested that division in a plant they had in Collinsville Alabama, subsequently looking for a buyer, once they were able to acquire 91% of Universal. Dixon, another chemical company
…show more content…
Project the incremental cash flows associated with the 1980 investment in laminate technology and estimate the investment’s net present value. (25 points)

We can use the same form as above. The capital expenditure after 1979 was expected to range from $475,000 to $ 600,000. With the laminate technology, the incremental cash flow needs to have extra cost from the installation of the laminate $2.25 million dollars. Based on the last question’s capex, and American expected that the laminate could be installed at the Collinsville plant at a onetime cost about $2.25 million, which amount could be depreciated over a period of 10 years. Installation at Collinsville was scheduled for December 1980. So the 1980 Capital Expenditure should be 538,000+2,250,000= $2,788,000.