American Chemical Corp Case Solution

Case Solution

A substantial chemical manufacturer divests a plant that's acquired having a small niche chemicals manufacturer. The acquisition decision is observed in the perspective in the small niche chemicals manufacturer.

Excel Calculations

·         Cost of Capital

·         Cost of Equity                                                                                   

·         Beta Estimation (For figures of 1978 Alone)

                                                                                        

·         Cost of Debt      

·         Weighted Average Cost of Capital           

·         NPV Without Lamanite

·         Assumptions     

·         NPV Calculations (All Amounts in $000)                                                                                                                                 

·         ASSETS ( In $ 000)                                                                                            

·         NPV With Lamanite

·         Assumptions     

·         NPV Calculations (All Amounts in $000)                                                                                                                                 

·         ASSETS ( In $ 000)            

·         Forecasted Income Statement                                                                                                                                                 

·         Increase in Expenses after 1984 (Assumptions) 

Questions Covered

1.       Estimate the weighted average cost of capital appropriate for discounting the Collinsville plant's incremental cash flows.

2.       Project the incremental cash flows associated with the acquisition of the Collinsville plant without the laminate technology and estimate the acquisition's net present value.  Project the incremental cash flows associated with the 1980 investment in laminate technology and estimate the investment's net present value.

3.       Is the Collinsville proposal attractive on economic grounds?

4.       As CEO of Dixon Corporation, would you approve the acquisition of the Collinsville plant at the price and on the terms proposed?  Why, or why not?  What alternatives, if any, would you suggest?