a4diamonpartb - Autumn 2011 Managerial Finance Prof....

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1 Autumn 2011 Managerial Finance Prof. Francisco Pérez-González Diamond Chemicals: Part B. Merseyside and Rotterdam Projects James Fawn, executive vice president of the Intermediate Chemicals Group (ICG) of Diamond Chemicals pondered how to decide between two mutually exclusive capital expenditure proposals. The firm’s capital budget was to be submitted for approval to the board of directors in early February 2001, and any projects proposed by Fawn for the ICG had to be forwarded to the chief executive officer of Diamond Chemicals soon for his review. Plant managers in Liverpool and Rotterdam had independently submitted expenditure proposals, each of which would expand the polypropylene output of their respective plants by seven percent. Diamond Chemicals’ strategic analysis staff argued strenuously that a company-wide increase in polypropylene output of seven percent made no sense, but half that amount did. Thus, Fawn could not accept both projects; he could sponsor only one for approval by the board. The Proposal from Merseyside, Liverpool The project for the Merseyside plant entailed the enhancement of existing facilities and the production process. The project is described in detail in the Diamond Chemicals PLC (A) case. The Rotterdam Project The proposal submitted for the Rotterdam plant consisted of a 90-page document replete with detailed schematics, engineering comments, strategic analyses, and financial projections. The basic
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This note was uploaded on 01/08/2012 for the course MS&E 245G taught by Professor Perez-gonzalas during the Fall '11 term at Stanford.

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a4diamonpartb - Autumn 2011 Managerial Finance Prof....

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