The Adjusted Present Value approach to valuation is especially useful when there the capital structure is uncertain and when debt to equity ratio is American chemical corporation wacc significantly. For further details please refer to Appendix 2.
We use this cost of capital to calculate NPV of the project. The after-tax cost of debt is Laminate technology makes the Collinsville plant acquisition attractive on economic grounds. In acquisition negotiation, Dixon should make a clause in the acquisition agreement, which protects the Dixon in the case that the laminate technology fails to produce the desired results.
Corporate finance students are expected to know how to work out the American chemical corporation wacc cash flow from the financial statements. These cases and related discussions are not intended to serve as examples or endorsements, sources of primary data, or illustrations of effective or ineffective management.
These cases are primarily corporate finance and valuation case studies but also has some elements of strategy and decision making with uncertainty. The Collinsville Plant case studies deal with the acquisition decision from the perspective of Dixon Corporation.
Thus, sodium chlorate may have higher beta than other chemical products. Weighted average cost of capital WACC: We wanted to know what is the rate of growth rate should be in both cases without and with laminate technology so that the company will have Zero NPV.
The inputs for the WACC formula are not given on a platter in these cases. Both the American Chemical Corp. Details on the types of loan and its repayment plan are provided.
So we have used the data in Exhibit 8 and projected cash flow from toand we have calculated cash flow to based on our assumptions aforesaid.
Building a plant would take a year, and market is changing rapidly, so Dixon could lose market potential if it takes a long time to build a new plant.
It is 6 more times cheaper to retain existing customer than acquire a new one. Laminate technology would allow company to considerably cut power cost and completely eliminate graphite costs.
So we had calculated additional NPV, which has derived from cost savings and tax benefits we have out of buying the additional laminate technology. According to the CAPM method, the cost of equity for this project is 9. Sensitive analysis In order to see whether the project is viable in case of negative changes in variables, we have conducted sensitive analysis having one of major variables such as sales growth rate, which can be reflected by different reasons such as decrease in demand, production slowdown, economic recession and etc.
Company has developed the relationships with Collinsville existing customers. The average beta is calculated from the formula: What discount rate would be appropriate to value the cash flows? Buying a plant would be the best entry strategy for company.
The costs associated with this technology will be different and so the cash flows and therefore the present value of these cash flows are going to be different if the technology is successful. Because sodium chlorate is totally new to Dixon, we assume that Dixon plays the role of a pure sodium chlorate producer and consider the average of the beta of Brunswick and Southern as the beta for Dixon in this project.
We use the historical equity risk premium 8. We assume that it is the risk free rate.
We assume that it is the risk free rate. Buying plant, company will not incur potential marketing costs in initial selling of new products. In case of Collinsville, we use NPV to approach to our recommendations. We also observe that the two pure play firms last 2 rows have higher beta than the market beta.Dixon, an American specialty chemical producer, wants to buy Collinsville plant from American Chemical Corporation, another typical chemical company in Dixon wants to diversify its product line by acquiring the aforesaid plant, which produces sodiumchlorate to supply to paper producers in South-eastern part of the US.5/5(6).
May 16, · American Chemical Corporation Final Case Study A Chemical Company - Duration: Weighted Average Cost of Capital (WACC) - Duration: American Chemical Corporation Posted on April 18, March 27, By admin Hence, we decide to alculate the beta of all firms that produce sodium chlorate to see the trend of beta of all firms in the market since we believe that such trend can be a benchmark for calculating the beta of sodium chlorate for Dixon’s project.
Case: AMERICAN CHEMICAL CORPORATION 1. Executive Summary Dixon, an American specialty chemical producer, wants to buy Collinsville plant from American Chemical Corporation, another typical chemical company in May 16, · American chemical corporation case Jessica Castanos Calculating weighted average cost of capital using Excel Matt Kermode 82, views.
Corp Finance - module 4 - NPV sensitivity. Case: American Chemical Corporation Words | 8 Pages. Case: AMERICAN CHEMICAL CORPORATION 1.
Executive Summary Dixon, an American specialty chemical producer, wants to buy Collinsville plant from American Chemical Corporation, another typical chemical company inDownload