Case 1 Corporate Finance: Capital Budgeting and Resource Allocation

Case Victoria Chemicals PLC A and B, Case 22, 23. (Bruner) The two cases shall be written as one project. Each group should hand in a final report plus be prepared to present their results at a seminar. The report should contain problems, methods, and relevant references well formulated and discussed, together with a thorough analysis. (methods is a description how you solved the issues, and not a description of different valuation methods) Try to keep the reports short and concise. Please note, that references, properly used, in the text are included in the reference list. 10 pages maximum. At each seminar approximately 5 groups will attend. Each group must be prepared to present all parts of their reports. The responsible teacher for each seminar has the possibility to assign a specific topic for each group to present. Check the group list to see how many teams there are to share the total time of each seminar. Grading: Maximum point equals 5. The seminar is mandatory and a person not present will have a reduction of 25% of the received points. The case must be handed in at 14.00 the day before the presentation. Hand it in to Stefan Sjgrens mailbox (D6) or in the mailbox outside the glass door (D6).
Below are some issues, and reminders, to think about when you solve the case: Case 19 1. Identification of relevant cash flows; in particular, the treatment of: sunk costs; cash flows obtained by cannibalising another activity within the firm; exploitation of excess transportation capacity; corporate overhead allocation; cash flows of unrelated projects; and inflation. 2. The critical assessment of a capital investment evaluation system. 3. The treatment of conflicts of interest and other ethical dilemmas that may arise in the investment decisions. Case 20 4. The relevance of cash flow from assets that may be separable from the core project. 5. The classic crossover problem in which project rankings disagree on the basis on NPV and IRR. 6. Sensitivity analysis, critical values Case 20 involves some real option calculations that you may exclude together with discussions on game theory, However, it is important to consider future possibilities (options) that different decisions may lead to.