American Chemical & Norwich Cases

American Chemical & Norwich Cases

Net present value (NPV), internal rate of return (IRR), and sensitivity analyses were performed with respect to a proposed acquisition by Dixon Corporation of the Collinsville Plant from American chemical. Analyses were performed under two assumptions├╣that the plant would be acquired without a new laminate technology and that the plant would be acquired with this technology. Using operating income projections for the Collinsville Plant and applying projected federal income tax rates applicable to Dixon Corporation, the NPV analyses (refer to Tables 1 and 2) indicated that the initial investment could not be recovered by Dixon under either acquisition assumption. Estimated IRRs are included at the end of each table. Sensitivity analysis indicated that the proposed investment is highly sensitive to changes in both sales prices and production costs.

Present Value Analysis [Acquisition Without Laminate Technology] & IRR

Year Item Amount ($) PVIF (16%) Present Value ($)

1979 Acquisition -12,000,000 1.000 – 12,000,000

1980 Optg Income 1,893,000

Year Net 791,160 .862 681,980

1981 Optg Income 3,328,000

Year Net 2,442,900 .743 2,112,275

1982 Optg Income 4,195,000

Year Net 2,081,800 .641 1,334,434

1983 Optg Income 4,344,000

Year Net 2,206,080 .552 1,217,756

1984 Optg Income 4,296,000

Year Net 2,227,920 .476 1,060,490

1985 Optg Income 4,078,000

Year Net 2,161,360 .410 886,158

1986 Optg Income 3,796,000

Year Net 2,056,720 .354 728,079

1987 Optg Income 3,387,000

Year Net 2,056,340 .305 627,184

1988 Optg Income …

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