American Chemical Essay

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HBS Case Number: 9-290-102 Executive Summary The American Chemical Corporation (AMC) is a large, diversified chemical producer. In 1979, AMC was forced to issue a tender to sell a Sodium Chlorate plant, near Collinsville, Alabama. Dixon, a specialty chemicals company, was willing to purchase the aforementioned plant for $12m with the option to invest a further $2.25m on laminate technology. The subsequent investment in Laminate technology was expected to eliminate graphite costs and reduce power consumption at the Collinsville plant by 15% to 20%. We will evaluate the acquisition of the Collinsville by Dixon at the proposed price. Table 1 identifies the assumptions that have been used for the evaluation of this acquisition. Table 1 Assumptions Reference Laminate Technology reduces power by a mean of 17.5% Pg 3, HBS 9-280-102 Laminate Technology is depreciated over 10 years Pg 3, HBS 9-280-102 Sodium Chlorate price growth is 8%, per annum Pg 4, HBS 9-280-102 Power cost (per KWH) growth is 12%, per annum Pg 4, HBS 9-280-102 Plant Life is 10 years Pg 1, Assessed work Sheet Plant Salvage Value is zero Pg 1, Assessed work Sheet EBIT is flat after 1984 Pg 1, Assessed work Sheet Capital Expenditures: $600,000 per annum after 1984 Pg 1, Assessed work Sheet Net Working Capital Remains flat after 1984 Pg 1, Assessed work Sheet Definition of “Flat” Pg 4 http://www.imf.org/external/pubs/ft/wp/2006/wp06218.pdf 6.5% is the Equity Risk Premium Slide 21, Risk and Return, class noteshttp:// www.investopedia.com/articles/04/012104.asp Tax rate is 48.69% Exhibit 7, HBS 9-280-102 From 1984 to 1989, the following growth rates are used Exhibit 8 , HBS 9-280-102 4 year Growth rate is used for Variable Costs Exhibit 8, HBS 9-280-102 Capital investment is based on figures from 1980-1984 Exhibit 8, HBS 9-280-102 PPE and depreciation is based on

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