American Checmical Corporation

American Chemical Corpo ration Issues surrounding Collinsville opportunity 1. Impact on revenues: diminution in margins due to overcapacity: Although sodium chlorate prices were expected to increase, the overcapacity would cause depend of tons to reduce (competition) and in that locationfore, hit the margins. 2. Impact on be: Increase of electricity from $0.019 in 1977 per kWh to $0.025 per kWh in 1979. Besides, due to upwards revaluation of assets, depreciation was expected to increase. 3. Impact from adoption of technology: Depreciation would increase and Dixon was required to pay all cost related to the installation of laminated electrodes. 4. Impact of Financing of acquisition: temporarily increase Debt to cracking ration to 47%. Target debt to capital ratio: 35%. Therefore, potential impact on mention ratings.[1] Economic valuation of the Collinsville plant We start the valuation of Collinsville plant by looking at the discount rate, then NPV and liquidation value. bank discount Rate (WACC): Firstly, we look at the of import of the plant since it is not a publicly traded company, we will use comparables approach to cypher the beta. Since, Dixon produces specialty chemical products and not Sodium Chlorate; therefore, Dixons beta may not be appropriate.

We therefore, would use industry level beta exploitation firms provided in exhibit 5 of case. We would even exclude Brunswick & Southern Chemicals since they are very small and there stock trading volume may be skewed. indeed we re-lever the beta. Next, we can determine the cost of equity by using CAPM based on T-bonds and take historical risk premium. comprise of debt can be taken as 11.25% as the financial support requires the same rate. The weight would be Dixons target debt ratio of 35%. Net Present Value (NPV): We would conduct a scenario analysis to determine the NPV without and with lamination technology. Using the cash flow estimates provided in exhibit 8 and using WACC computed above we can see the NPV under no... If you want to get a full essay, articulate it on our website: Orderessay

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