Empirical Chemicals Harvard Case Solution & Analysis

Empirical Chemical

Introduction

Empirical Chemical was a major producer of polypropylene, which is used in range of products.

The production process started with propylene, which was received in tanks as a refined gas. It was produced in the England’s refineries and Empirical Chemical purchased it after refining from crude oil into gasoline. In 1967 Merseyside plant was built and had an old production process facility.  It was labor intensive which made the Merseyside production facility costly for the Empirical Chemicals.

In 1992 Frances Trelawney was appointed as plant manager of the Empirical Chemical Merseyside facility and she was responsible for the production process. During her presence in the Empirical Chemical, capital budgeting was approved to improve the production facility and this capital project was amounted to $7 million. She also anticipated the shutdown of the production line for sixty days. The project was initiated for the renovation and improvement in the production line.

Case Analysis:

The information given in the case study resulted in following analysis:

Transport Division (TD) addition expenditures

From the given data; Merseyside Project had to cover the additional cost that could occur because of the additional purchasing of rolling inventory needed for the production. Increased output of Merseyside project would also increase the transportation cost and these cost would be allocated directly to the Merseyside’s additional capacity of production. From this project the cost would be increased by $2million and the rolling stock had a depreciable life of 10 years; in addition its life could be increased by proper maintenance.

Please refer the excel sheet for the calculation of the Discounted Cash flow’s net present value:

From the given information in the exhibits, the calculations were made on the basis of the following assumptions:

The annual output considered in the project was.....................

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