AROMATIC CHEMICALS

DCF Analysis of Liverpool Project

(Financial values in millions of British Pounds)

Assumptions
Annual Output (metric tons) 3,500,000 Discount rate 12.00% Historical Market Risk Premium Shares Outstanding
Output Gain/Original Output 6.0% Depreciable Life (years) 15 Beta 1.2 Share price
Price/ton (pounds sterling) 1300 Overhead/Investment 4.0% U.K. 15 Year Gilt yield Market value of shares 2265000000
Inflation Rate (prices and costs) 0.0% Salvage Value 0 Cost of Equity 11.40% Long term debt (book=market value) 5.50%
Gross Margin (ex. Deprec.) 12.00% WIP Inventory/Cost of Goods 4.0% Estimated yield on bonds % of debt in total financing 6.00%
Old Gross Margin 11.0% Months Downtime, Construction 1.6 WACC 11.5% % of equity in total financing 6.70%
Tax Rate 25.0% After-tax Scrap Proceeds 0
Investment Outlay (mill.) 300.00 Preliminary Engineering Costs 20
Energy Savings/Sales Yr. 1-5 1.20% No of Shares (miilion) 1,500
Yr. 6-10 0.7%
Yr. 11-15 0.2%

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Year Now 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036
1. Estimate of Incremental Gross Profit
New Output (tons) 3,710,000 3,710,000 3,710,000 3,710,000 3,710,000 3,710,000 3,710,000 3,710,000 3,710,000 3,710,000 3,710,000 3,710,000 3,710,000 3,710,000 3,710,000
Lost Output--Construction (494,667)
New Sales (Millions) 4179.93 4823.00 4823.00 4823.00 4823.00 4823.00 4823.00 4823.00 4823.00 4823.00 4823.00 4823.00 4823.00 4823.00 4823.00
New Gross Margin 13.2% 13.2% 13.2% 13.2% 13.2% 12.7% 12.7% 12.7% 12.7% 12.7% 12.2% 12.2% 12.2% 12.2% 12.2%
New Gross Profit 551.75 636.64 636.64 636.64 636.64 612.52 612.52 612.52 612.52 612.52 588.41 588.41 588.41 588.41 588.41

Old Output 3,500,000 3,500,000 3,500,000 3,500,000 3,500,000 3,500,000 3,500,000 3,500,000 3,500,000 3,500,000 3,500,000 3,500,000 3,500,000 3,500,000 3,500,000
Old Sales 4550.00 4550.00 4550.00 4550.00 4550.00 4550.00 4550.00 4550.00 4550.00 4550.00 4550.00 4550.00 4550.00 4550.00 4550.00
Old Gross Profit 500.50 500.50 500.50 500.50 500.50 500.50 500.50 500.50 500.50 500.50 500.50 500.50 500.50 500.50 500.50
Incremental Gross Profit 51.25 136.14 136.14 136.14 136.14 112.02 112.02 112.02 112.02 112.02 87.91 87.91 87.91 87.91 87.91

2. Estimate of Incremental Depreciation

New Depreciation 40.00 34.67 30.04 26.04 22.57 19.56 16.95 14.69 12.73 11.03 14.34 14.34 14.34 14.34 14.34
3. Overhead 12.00 12.00 12.00 12.00 12.00 12.00 12.00 12.00 12.00 12.00 12.00 12.00 12.00 12.00 12.00
4. Prelim. Engineering Costs 20.00
5. Pretax Incremental Profit (20.75) 89.47 94.09 98.10 101.57 80.46 83.07 85.33 87.29 88.99 61.56 61.56 61.56 61.56 61.56
6. Tax Expense (5.19) 22.37 23.52 24.52 25.39 20.12 20.77 21.33 21.82 22.25 15.39 15.39 15.39 15.39 15.39

7. After-tax Profit (15.56) 67.10 70.57 73.57 76.18 60.35 62.30 64.00 65.47 66.74 46.17 46.17 46.17 46.17 46.17
8. Cash Flow Adjustments
Less Capital Expenditures (300.00)
Add back Depreciation 40.00 34.67 30.04 26.04 22.57 19.56 16.95 14.69 12.73 11.03 14.34 14.34 14.34 14.34 14.34
Less Added WIP inventory 16.85 -22.33 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
After-tax Scrap Proceeds 0.00
8. Free Cash Flow (300.00) 41.29 79.44 100.61 99.61 98.74 79.91 79.25 78.69 78.20 77.77 60.52 60.52 60.52 60.52 60.52
9 EPS 2.75 5.30 6.71 6.64 6.58 5.33 5.28 5.25 5.21 5.18 4.03 4.03 4.03 4.03 4.03
NPV =
IRR =
 0 1 2 3 4 5
Year Now 2022 2023 2024 2025 2026
1. Estimate of Incremental Gross Profit
New Output (tons) 3710000 3710000 3710000 3710000 3710000
Lost Output--Construction -494667
New Sales (Millions) 4179.933 4823 4823 4823 4823
New Gross Margin 0.132 0.132 0.132 0.132 0.132
New Gross Profit 551.7512 636.636 636.636 636.636 636.636

Old Output 3500000 3500000 3500000 3500000 3500000

Old Sales 4550 4550 4550 4550 4550
Old Gross Profit 500.5 500.5 500.5 500.5 500.5
Incremental Gross Profit 51.2512 136.136 136.136 136.136 136.136

2. Estimate of Incremental Depreciation

New Depreciation 40 34.66667 30.04444 26.03852 22.56672
3. Overhead 12 12 12 12 12
4. Prelim. Engineering Costs 20
5. Pretax Incremental Profit -20.7488 89.46933 94.09156 98.09748 101.5693
6. Tax Expense -5.1872 22.36733 23.52289 24.52437 25.39232

7. After-tax Profit -15.5616 67.102 70.56867 73.57311 76.17696

8. Cash Flow Adjustments
Less Capital Expenditures -300
Add back Depreciation 40 34.66667 30.04444 26.03852 22.56672
Less Added WIP inventory 16.85271 -22.32727 0 0 0
After-tax Scrap Proceeds 0
8. Free Cash Flow -300 41.29111 79.44139 100.6131 99.61163 98.74368
9 EPS 2.752741 5.296093 6.707541 6.640775 6.582912
NPV = 302,366.00
IRR = 17.80%
Average EPS 4.96043596 pence
Payback period 3.78961044 years
 6 7 8 9 10 11 12 13 14 15
2027 2028 2029 2030 2031 2032 2033 2034 2035 2036

3710000 3710000 3710000 3710000 3710000 3710000 3710000 3710000 3710000 3710000

4823 4823 4823 4823 4823 4823 4823 4823 4823 4823
0.127 0.127 0.127 0.127 0.127 0.122 0.122 0.122 0.122 0.122
612.521 612.521 612.521 612.521 612.521 588.406 588.406 588.406 588.406 588.406

3500000 3500000 3500000 3500000 3500000 3500000 3500000 3500000 3500000 3500000
4550 4550 4550 4550 4550 4550 4550 4550 4550 4550
500.5 500.5 500.5 500.5 500.5 500.5 500.5 500.5 500.5 500.5
112.021 112.021 112.021 112.021 112.021 87.906 87.906 87.906 87.906 87.906

19.55782 16.95011 14.6901 12.73142 11.03389 14.34406 14.34406 14.34406 14.34406 14.34406
12 12 12 12 12 12 12 12 12 12

80.46318 83.07089 85.3309 87.28958 88.98711 61.56194 61.56194 61.56194 61.56194 61.56194
20.11579 20.76772 21.33273 21.8224 22.24678 15.39048 15.39048 15.39048 15.39048 15.39048

60.34738 62.30317 63.99818 65.46719 66.74033 46.17145 46.17145 46.17145 46.17145 46.17145

19.55782 16.95011 14.6901 12.73142 11.03389 14.34406 14.34406 14.34406 14.34406 14.34406
0 0 0 0 0 0 0 0 0 0

79.90521 79.25328 78.68827 78.1986 77.77422 60.51552 60.51552 60.51552 60.51552 60.51552
5.327014 5.283552 5.245885 5.21324 5.184948 4.034368 4.034368 4.034368 4.034368 4.034368
 0 1 2 3 4 5
Year Now 2022 2023 2024 2025 2026
1. Estimate of Incremental Gross Profit
New Output (tons) 3710000 3710000 3710000 3710000 3710000
Lost Output--Construction -494667
New Sales (Millions) 4179.933 4823 4823 4823 4823
New Gross Margin 0.132 0.132 0.132 0.132 0.132
New Gross Profit 551.7512 636.636 636.636 636.636 636.636

Old Output 3500000 3500000 3500000 3500000 3500000

Old Sales 4550 4550 4550 4550 4550
Old Gross Profit 500.5 500.5 500.5 500.5 500.5
Incremental Gross Profit 51.2512 136.136 136.136 136.136 136.136

2. Estimate of Incremental Depreciation

New Depreciation 40 34.66667 30.04444 26.03852 22.56672
3. Overhead 12 12 12 12 12
4. Prelim. Engineering Costs 20
5. Pretax Incremental Profit -20.7488 89.46933 94.09156 98.09748 101.5693
6. Tax Expense -5.1872 22.36733 23.52289 24.52437 25.39232

7. After-tax Profit -15.5616 67.102 70.56867 73.57311 76.17696

8. Cash Flow Adjustments
Less Capital Expenditures -300
Add back Depreciation 40 34.66667 30.04444 26.03852 22.56672
Less Added WIP inventory 16.85271 -22.32727 0 0 0
After-tax Scrap Proceeds 0
8. Free Cash Flow -300 41.29111 79.44139 100.6131 99.61163 98.74368
9 EPS 2.752741 5.296093 6.707541 6.640775 6.582912
NPV = 22,678.22
IRR = 17.80%
Average EPS 4.960436 pence
Payback period 3.7896104 years
 6 7 8 9 10 11 12 13 14 15
2027 2028 2029 2030 2031 2032 2033 2034 2035 2036

3710000 3710000 3710000 3710000 3710000 3710000 3710000 3710000 3710000 3710000

4823 4823 4823 4823 4823 4823 4823 4823 4823 4823
0.127 0.127 0.127 0.127 0.127 0.122 0.122 0.122 0.122 0.122
612.521 612.521 612.521 612.521 612.521 588.406 588.406 588.406 588.406 588.406

3500000 3500000 3500000 3500000 3500000 3500000 3500000 3500000 3500000 3500000
4550 4550 4550 4550 4550 4550 4550 4550 4550 4550
500.5 500.5 500.5 500.5 500.5 500.5 500.5 500.5 500.5 500.5
112.021 112.021 112.021 112.021 112.021 87.906 87.906 87.906 87.906 87.906

19.55782 16.95011 14.6901 12.73142 11.03389 14.34406 14.34406 14.34406 14.34406 14.34406
12 12 12 12 12 12 12 12 12 12

80.46318 83.07089 85.3309 87.28958 88.98711 61.56194 61.56194 61.56194 61.56194 61.56194
20.11579 20.76772 21.33273 21.8224 22.24678 15.39048 15.39048 15.39048 15.39048 15.39048

60.34738 62.30317 63.99818 65.46719 66.74033 46.17145 46.17145 46.17145 46.17145 46.17145

19.55782 16.95011 14.6901 12.73142 11.03389 14.34406 14.34406 14.34406 14.34406 14.34406
0 0 0 0 0 0 0 0 0 0

79.90521 79.25328 78.68827 78.1986 77.77422 60.51552 60.51552 60.51552 60.51552 60.51552
5.327014 5.283552 5.245885 5.21324 5.184948 4.034368 4.034368 4.034368 4.034368 4.034368