Diamond Chemicals PLC Harvard Case Solution & Analysis


The Diamond Chemical PLC has good reputation in the market with respect to their product quality and their efficiency level. They are the major producer of the propylene product in which they have sound effectiveness on it. The company operation is vest due to their product line around their locality. Moreover, the industry in which they are working is very common in the world with having the best return on it. The major operation of the business is located in the areas of the Mid-Europe, which is commonly known as England city. The top executive has noticed some problems which are arising due to the changes in the level of the technology and the external environment. Apart from this, the organization has decide some solution for overcome the problem of low profitability and growth of the revenue is to go on the part of the expansion side which would more beneficial for them. Furthermore the company has identified two projects which having the good flows and good rate of return. These projects are located at Merseyside and Rotterdam. Now the problem arises which project is better. For resolving these issue, company has a planfor strategic decision in which they analyses which project is better in term of today’s value. These projects have good value, but the analyses are done on the financial values, not on the verbal communication as well as the company knowledge. In the analyses, the four techniques are the present value method in which using the technique of discounted cash flow, internal rate of return in which company knows the breakeven point of the project, payback period and four are the calculating the expected earnings per share.

On the basis of the analysis by using above given techniques, the results are in the favor of Merseyside because their return on investment in today`s term are more profitable as comparable to the Rotterdam. Furthermore, the rate of internal return is much more of Merseyside as compared to the Rotterdam. All the aspects of the analyses are given the green signal to the Merseyside. The payback period is also shorter period and expected earnings per share are also better. This analysis is complete with respect to the matters of financial management, which is very important for calculating the financial viability of the projects. All the result of the projects is done on the practical assumptions which are common in the finance world. The enterprise has also identified the non-financial areas which are the key of success because in very financial projects, the non-financial aspects are helping with the solution with their concreteness. The non-financial factors may be the team of the enterprise or management of the organization, etc. There are many factors which company has to identify the matters of the financing.Nonfinancial factors are to value the profit viability through the financial strength of that particular investment project.

The net present value of the Merseyside is British pound 13.9 million as compared to Rotterdam having 10.61 Britishpounds. Moreover, the rate of internal return having 26.27 percent of Merseyside with the comparison of Rotterdam has 14.7 percent. These are the main advantages, and on the basis of these benefits indicates that Merseyside has much more potential as comparedRotterdam`s Project. For all these changes and reflections the decision is in the favor of Merseyside

2         Solution no:1

2.1        Eustace`s Analysis

By analyzing the project of Rotterdam, which isprepared by Eustace, shows that the project is good, but when it’s coming in the analyses of the today`s term then the decision criteria will change and does not endorse them. The basic reason for that action because of the low Present value of the project while on the other side, Merseyside have a good present value of the project which is a thirteen point nine Britishpounds. Although, the analysis is done by looking out all the criteria of technological effects & management concerned. The company should improve this project by reducing the extra capital expenditure and increase the cash inflows to cover the extra cost of the expenditure. Furthermore, the company can do one more thing is to amortizeits investment cost of identifying the potential area which are not available in the case material. In a very simple word, that the company has to re-design it`s processed for evaluating the financial aspects of the company. These things will improve the financial care of the enterprise. The Rotterdam has prepared this analysis with respect to different assumptions which are mentioned in the case that is using the discounted rate is ten percent and the inflation rate is three percent.These assumptions are the basic criteria of the financial management and reflecting on the economy of the country.

2.2        Justification

The justification of the basis of the analyses is done with some assumptions which are the main part of the calculations and the reason.................

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