Diamond Chemicals Plc (a): the Merseyside Project
Diamond Chemicals is a leading producer of polypropylene, the polymer used in a variety of products (ranging from medical products to packaging film, carpet fibers and automotive components) and is known for its strength and elasticity. Diamond Chemicals is producing polypropylene at Merseyside (England) and in Rotterdam (Netherlands). Both factories are identical in size, age and plant-design. They were both built in 1967. Merseyside production process is the production process that are old, the best semi-continuous and therefore has a total workforce of more than the plant competitors.
Since its establishment in 1967, Diamond Chemicals failed to jump in on opportunity and enhance their production process; for the way they produced
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This unilateral view is harmful to Diamond as standing on the point of only one corner will not help to see the whole picture and therefore detrimental to the operation of Diamond. In order to make the allocation out of excess capacity, the Transport Division would accelerate from 2005 to 2003 the need to purchase new rolling stock to support the anticipated growth of the firm in other areas. Greystock should reflect this charge for the use of excess rolling stock in the DCF analysis. Given that the Transport division depreciated rolling stock using DDB depreciation for the first eight years and straight-line depreciation for the last two years, we calculated the depreciation schedule as follows: It should be added after the item new depreciation item. Morris might also consider to report this kind of problem to the director’s board that as two divisions report to separate executive vice presidents, the employees tend to solve questions on their own behalf inside the division, instead the company as whole. This could be changed by changing the incentive bonus program.
Concerns of the ICG Sales and Marketing Department
Greystock has not taken into consideration of the opportunity cost of the loss of business at Rotterdam in his preliminary analysis of the Merseyside project. It is discussable whether doing so is good for estimation. Although the cannibalization charge is hard to estimate, but totally ignore the cost is not