Victoria Chemicals (B) Group Case Study
Introduction Victoria Chemicals’ Intermediate Chemicals Group (ICG) is evaluating two mutually exclusive proposals on their capital expenditures. The Liverpool and Rotterdam plants have compiled separate proposals. Each proposal had the potential to increase the polypropylene output by 7 percent for their plant respectively. Victoria Chemicals could not view a 14 percent increase companywide being feasible, but agreed half of it would. The board would approve only one of the projects. James Fawn must support one proposal and then submit it to the board for consent.
Background of Firm
Victoria Chemicals, a major competitor in the worldwide …show more content…
Rotterdam would obtain the gas from a neighboring refinery via a pipeline and would require right-of-way. Rotterdam has an option to purchase these for GBP3.5 million, included in the proposal’s projected cost of GBP10.5 million. In six months this option will expire. Fawn must consider the effects of cannibalism on the Merseyside plant that will occur if the company accepts the Rotterdam project. By undergoing the changes in the Rotterdam project, some of the output and sales of the Merseyside plant will be taken by the plant in Rotterdam. The erosion begins in 2004 and occurs in every year afterward.
Hidden Jewels Victoria Chemicals could diminish its dependency of railroad cars if the Rotterdam project was selected. Instead of transporting the propylene gas via railroad cars, the firm could use the pipeline to flow a continuous supply. With all of this in mind, the plant manager at Merseyside, Lucy Morris, has made it publicly known that she would prefer to assess the technological advancements before adding them there. If the technology proved to be successful at the Rotterdam plant, the high-tech system could be annexed by Merseyside at a later time. Victoria Chemicals had already purchased the right-of-way option in case a pipeline needed to flow a continuous supply of propylene gas to the Rotterdam plant, if the Merseyside proposal were to be selected, that option could be sold to recover its costs and possibly generate profit