Exhibit 2 DCF Analysis of Merseyside Project (Financial values in millions of British Pounds)
Assumptions Annual Output (metric tons) Output Gain/Original Output Price/ton (pounds sterling) Inflation Rate (prices and costs) Gross Margin (ex. Deprec.) Old Gross Margin Tax Rate Investment Outlay (mill.) Energy Savings/Sales Yr. 1-5 Yr. 6-10 Yr. 11-15
250,000 7 .0 % 541 3. 0 % 12.50% 1 1. 5 % 3 0 .0 % 9.00 1.25% 0 .8 % 0 .0 %
0 Year Now 1. Estimate of Incremental Gross Profit New Output (tons) Lost Output--Construction New Sales Sales (Millions) New Gross Margin Margin New Gross Profit Profit
1 2001
Old Output Old Sales Old Gross Profit Incremental Gross Profit 2. Estimate of Incremental Depreciation New Depreciation Depreciation New Depreciation Depreciation - Tank Depreciation - Tank 3. Overhead 4. Prelim. Engineering Costs 5. Pretax Incremental Profit 6. Tax Expense 7. After-tax Profit 8. Cash Flow Adjustments Less Ca Cap it ital Ex Exp en enditu re res Add back Depreciation Less Added WIP inventory
2 2002
3 2003
11 2011
12 2012
13 2013
14 2014
15 2015
267,500
267,500
267,500
267,500
267,500
267,500
250,000 156.79 18.03 4.20
250,000 161.50 18.57 4.32
250,000 166.34 19.13 4.45
250,000 171.33 19.70 4.59
250,000 176.47 20.29 4.72
1.20
1.04
0.90 0.40
0.78 0.32
0.00 0.00 0.66 0.20
0.00
0.00
0.00
0.68 0.26 -0.42 0.00
0.59 0.20 -0.34 0.00
0.51 0.16 -0.27 0.00
0.44 0.13 -0.21 0.00
0.38 0.10 -0.18 0.00
3.44 1.03
3.31 0.99
3.65 1.09
4.38 1.31
3.75 1.12
3.92 1.18
4.09 1.23
0.46
2.40
2.32
2.55
3.06
2.62
2.75
1.20 0.31
1.04 -0.47
-2.00 1.30 0.00
1.10 0.00
2.12 0.51 -0.01
0.45 -0.03
2.97
1.61
3.65
5.69
17,500 10.35 1.19 0.83 0.31 (0.52)
17,500 10.66 1.23 0.86 0.32 (0.54)
177.98 13.3% 23.58
267,500
10 2010
250,000 152.23 17.51 4.89
172.80 13.3% 22.90
267,500
9 2009
250,000 147.79 17.00 4.75
167.77 13.3% 22.23
267,500
8 2008
250,000 143.49 16.50 4.61
162.88 13.8% 22.40
267,500
7 2007
250,000 139.31 16.02 4.48
158.14 13.8% 21.74
267,500
6 2006
250,000 135.25 15.55 1.86
153.53 13.8% 21.11
267,500
5 2005
267,500 149.06 13.8% 20.50
267,500
4 2004
10.0% <== Note that discount rate should be set to 10 % for 15 exact comparability to case exhibit. 0 .0 % 0 3. 0 % 1 .5 0 0 2.00 10
267,500 (33,438) 126.63 13.8% 17.41
(9.00 )
After-tax Scrap Proceeds 9. Free Cash Flow
Discount rate Depreciable Life (years) Overhead/Investment Salvage Value WIP Inventory/Cost of Goods Months Downtime, Construction After-tax Scrap Proceeds Preliminary Engineering Costs Investment outlay-Tank (mill.) Depreciable Life-Tank (years)
183.32 13.3% 24.29
188.82 13.3% 25.02
194.49 12.5% 24.31
200.32 12.5% 25.04
206.33 12.5% 25.79
212.52 12.5% 26.57
218.90 12.5% 27.36
250,000 181.76 20.90 3.41
250,000 187.22 21.53 3.51
250,000 192.83 22.18 3.62
250,000 198.62 22.84 3.72
250,000 204.58 23.53 3.84
0.33 0.08 -0.14 0.00
0.43 0.17 -0.11 0.00
0.43 0.17 -0.09 0.00
0.43
0.43
0.43
0.00
0.00
0.00
4.28 1.28
4.45 1.34
2.92 0.88
3.00 0.90
3.19 0.96
3.29 0.99
3.41 1.02
2.86
3.00
3.12
2.04
2.10
2.23
2.31
2.38
0.40 -0.01
0.36 -0.01
0.31 -0.01
0.27 -0.01
0.49 -0.05
0.51 -0.01
0.43 -0.01
0.43 -0.01
0.43 -0.01 0.32
3.04
3.14
3.22
3.30
3.38
2.48
2.60
2.65
2.73
3.13
17,500 10.98 1.26 0.88 0.33 (0.55)
17,500 11.30 1.30 0.91 0.34 (0.57)
17,500 11.64 1.34 0.94 0.35 (0.59)
17,500 11.99 1.38 0.97 0.36 (0.61)
17,500 12.35 1.42 0.99 0.37 (0.62)
17,500 12.72 1.46 1.02 0.38 (0.64)
17,500 13.11 1.51 1.05 0.39 (0.66)
17,500 13.50 1.55 1.09 0.40 (0.68)
17,500 13.90 1.60 1.12 0.42 (0.70)
17,500 14.32 1.65 1.15 0.43 (0.72)
0.00
-9.00 13.96
1.97
NPV = 31.2% IRR = 10. Adjustment for erosion in Rotterdam volume: Lost Rotterdam Output Lost Rotterdam Revenue Lost Rotterdam Gross Profits Lost Gross Profits after Taxes Change in Rotterdam Inventory Total Effect on Free Cash Flow (3.85) DCF, Erosion Rotterdam DCF, Merseyside Adjusted for Full Erosion at Rotterdam = 10.11
Payback
17,500 9.75 1.12 0.78 0.29 (0.49) Payback
3.67
17,500 10.04 1.16 0.81 0.30 (0.51) 4.06
Exhibit 3 DIAMOND CHEMICALS (B)
ANALYSIS OF ROTTERDAM PROJECT (Financial values in millions of British Pounds)
Assumptions Annual Output (metric tons) Output Gain Per Year/Prior Year Maximum Possible Output Price/ton (pounds sterling) Inflation (prices and costs) Gross Margin Growth Rate/Year Maximum Possible Gross Margin Old Gross Margin Tax Rate Investment Outlay (millions)
Now 2001 2002 2003
0 Year Now 1. Estimate of Incremental Gross Profit New Output Lost Output--Construction New Sales (Millions) New Gross Margin New Gross Profit Old Output Old Sales Old Gross Profit Incremental Gross Profit 2. Estimate of Incremental Depreciation Outlays Yr. 1 Outlays Yr. 2 Outlays Yr. 3 Outlays Total, New Depreciation Opportunity Cost -2.5 3. Overhead 4. Pretax Incremental Profit (0.75) 5. Tax Expense 6. After-tax Profit (1.75) 7. Cash Flow Adjustments Add back Depreciation Less added WIP inventory Capital Spending Terminal Value, land
3.50
250,000 2.0% 267,500 541 3.0% 0.80% 16.0% 11.5% 30.0% 3.5 2.5 1 1
Discount rate Depreciable Life (years) Overhead/Investment Salvage Value WIP Inventory/Cost of Goods Sold Terminal Value of Right-of-Way Months Downtime, Construction
4 2004
6 2006
7 2007
1 2001
2 2002
3 2003
255,000 (106,250) 80.47 11.6% 9.33
260,100 (86,700) 96.62 11.8% 11.38
265,302 (66,326) 114.20 12.1% 13.78
267,500
250,000 135.25 15.55 (6.23)
250,000 139.31 16.02 (4.64)
250,000 143.49 16.50 (2.72)
250,000 147.79 17.00 2.70
250,000 152.23 17.51 3.60
250,000 156.79 18.03 4.78
250,000 161.50 18.57 6.27
250,000 166.34 19.13 8.14
250,000 171.33 19.70 9.63
250,000 176.47 20.29 9.92
250,000 181.76 20.90 10.22
250,000 187.22 21.53 10.52
0.30 0.22 0.10 0.13 0.76
0.26 0.19 0.09 0.11 0.65
0.23 0.16 0.08 0.09 0.56
0.20 0.14 0.07 0.08 0.48
0.17 0.12 0.06 0.07 0.42
0.15 0.11 0.05 0.06 0.36
0.13 0.09 0.04 0.05 0.31
0.17 0.12 0.04 0.04 0.36
158.14 12.5% 19.69
5 2005
2001 2002 2003 2004
10.0% 15 3.5% 0 3.0% 35 5 4 3 0
267,500 162.88 13.0% 21.11
267,500 167.77 13.6% 22.81
267,500 172.80 14.4% 24.84
8 2008
9 2009
10 2010
11 2011
12 2012
13 2013
14 2014
15 2015
267,500
267,500
267,500
267,500
267,500
267,500
267,500
267,500
177.98 15.3% 27.27
183.32 16.0% 29.33
188.82 16.0% 30.21
194.49 16.0% 31.12
200.32 16.0% 32.05
206.33 16.0% 33.01
212.52 16.0% 34.00
218.90 16.0% 35.02
250,000 192.83 22.18 10.84
250,000 198.62 22.84 11.16
250,000 204.58 23.53 11.50
0.17 0.12 0.05 0.03 0.37
0.17 0.12 0.05 0.06 0.40
0.17 0.12 0.05 0.06 0.40
0.17 0.12 0.05 0.06 0.40
0.47 0.33
0.40 0.29 0.14
0.80
0.84
0.35 0.25 0.12 0.15 0.88
0.12 (7.15) (2.14) (5.00)
0.13 (5.60) (1.68) (3.92)
0.13 (3.73) (1.12) (2.61)
0.13 1.81 0.54 1.27
0.14 2.81 0.84 1.97
0.14 4.07 1.22 2.85
0.15 5.64 1.69 3.95
0.15 7.57 2.27 5.30
0.16 9.11 2.73 6.38
0.16 9.45 2.83 6.61
0.16 9.69 2.91 6.78
0.17 9.98 2.99 6.98
0.17 10.26 3.08 7.18
0.18 10.58 3.17 7.41
0.19 10.91 3.27 7.64
0.80 1.46
0.84 (0.32)
0.88 (0.34)
0.76 (1.03)
0.65 0.02
0.56 0.03
0.48 0.03
0.42 0.05
0.36 0.03
0.31 -
0.36 -
0.37 -
0.40 -
0.40 -
0.40 (0.07)
2.50
1.00
1.00 1.00
2.64 16.4%
3.44
4.46
5.76 Payback
6.77 8.10
6.92
7.14
7.36
7.58
7.81
8.04
8. Free Cash Flow (5.25) (5.25) (4.40) (3.08) DCF, Rotterdam = 9.84 IRR, Rotterdam = 9. Adjustment for erosion in Merseyside volume: Lost Merseyside Output Lost Merseyside Revenue Lost Merseyside Gross Profits Lost Gross Profits after Taxes Change in Merseyside Inventory Total Effect on Free Cash Flow (3.27) DCF, Erosion Merseyside 100% Rate of Cannibalization DCF, Rotterdam Adjusted for Full Erosion IRR at Merseyside = 6.57
-
17,500 10.35 1.19 0.83 0.27 (0.56)
17,500 10.66 1.23 0.86 0.28 (0.57)
14.45%
17,500 10.98 1.26 0.88 0.29 (0.59)
17,500 11.30 1.30 0.91 0.30 (0.61)
17,500 11.64 1.34 0.94 0.31 (0.63)
Payback
17,500 11.99 1.38 0.97 0.32 (0.65)
8.59
17,500 12.35 1.42 0.99 0.33 (0.67)
17,500 12.72 1.46 1.02 0.34 (0.69)
17,500 13.11 1.51 1.05 0.35 (0.71)
17,500 13.50 1.55 1.09 0.36 (0.73)
17,500 13.90 1.60 1.12 0.37 (0.75)
17,500 14.32 1.65 1.15 0.38 (0.77)
