American Chemical Corp.
provide the answers to the following questions for American Chemical Corporation – HBP Case # 280-102
in Word and Excel files.

1. Estimate the cost of equity appropriate for the evaluation of the incremental cash flows associated with the Collinsville investment. Estimate the weighted average cost of capital appropriate for discounting the Collinsville plant’s incremental cash flows.

2. Project the incremental cash flows associated with the acquisition of the Collinsville plant without the laminate technology and estimate the acquisition’s net present value.
Seaparetly, project the incremental cash flows associated with the 1980 investment in laminate technology and estimate the investment’s NPV.

3. This ill enable you to determine: is the Collinsville proposal attractive on economic grounds?
4. Assess the strategic issues associated with the proposal. Is Collinsville attractive on strategic grounds?

5. As CEO of Dixon Corporation, would you approve the acquisition of the Collinsville plant at the price and on the terms proposed? Why, or why not? What alternatives, if any, would you suggest?

Although the attributes relating to the period 1980 till 1984 were readily available from exhibit 8, our model was developed to be fully computational. Thus, we first computed the operating income, (EBIT) by subtracting7 the cost of goods sold and depreciation from the revenue. We then calculated the Earnings before interest and after tax with specification 7: (7) EBIAT = EBIT * (1 –T) The second phase of our calculation determined the capital expenditure. Capital Expenditures include expenditures on new and replacement property, plant and equipment. Thus, we calculated Capital expenditures by measuring the increase in net property, plant and equipment plus depreciation. (Source: Pg174 Copeland et al, 1996) The third phase of our calculation determined the change in working capital between two time periods. In order to do so, we first calculated the working capital. This was achieved by the summation of Accounts receivables’, inventories less accounts payable. In light of the aforementioned, specification 8 was used to determine incremental cash flows. (8) FCF = EBIAT + DEP – CAPEX – CH in W/ CAP The cited schema was also applied for the period 1985-1989 however,