Empirical Chemicals LTD Darden Business School Case study UVA F 1021
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What new changes, if any, should Jim Hawkins and Johan Silver make in their DCF analysis? Why?
Jim Hawkins should consider the $2 million in rolling stock that is needed for his project. Silver has accounted for the need to transport the increased volume of propylene gas through a new pipeline and right-of-way for $3 million. It would be an unequal comparison if Hawkins did not account for his new transport costs.
Johan Silver seems to not have allowed for overhead, when, according to EC(A)"the corporate manual stipulated that overhead costs be reflected in project analyses at the rate of 3.5% times book value of assets acquired in the project." The allotted overhead for the Rotterdam project is "0" for years 1-15.
How do the projects compare? Which should be selected?..