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Npv Profile of Rotterdam Project Crossover Rates Worksheet

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Homework- Lecture 5
(Due Date: 11:59 PM, February 18, 2021)
Note: This is a group work. Each group will turn in one copy of this homework. The
quantitative analysis should be done in Excel and the writing work should be saved as PDF.
Question 1:
Use the Excel files “Victoria Chemicals_Case A_Revised.xlsx” and “Victoria Chemicals_Case
B_Revised.xlsx” to answer the following two questions:
1) If there is no erosion at other plant, what is the crossover rate of the NPV profile of
Merseyside project and the NPV profile of Rotterdam project?
2) If there is full erosion at other plant, what is the crossover rate of the NPV profile of
Merseyside project and the NPV profile of Rotterdam project?
Based on the crossover rates you figure out, please explain why NPV and IRR may come up with
different conclusions about Merseyside versus Rotterdam projects when you do not consider
erosion and consider full erosion. Which criterion should you use to make the final decision?
The corssover rate is 8.5% if there is not erosion on the project. If the discount rate is grater than 8.5%
then the Merseyside project has a higher NPV and if the discount rate is less than 8.5% then the
Rotterdam project will have a greater NPV. Since the Discount rate is 10% we can conclude that
Merseyside is a better option as it gives a higher return.
Question 2:
Use the Excel files “Victoria Chemicals_Case A_Revised.xlsx” and “Victoria Chemicals_Case
B_Revised.xlsx” to answer the following two questions:
1) Based on “Victoria Chemicals_Case A_Revised.xlsx”, if the output of Rotterdam just
declines by 20% and 50%, how much are NPVs of the Merseyside project, respectively?
2) Based on “Victoria Chemicals_Case B_Revised.xlsx”, if the output of Merseyside just
declines by 20% and 50%, how much are NPVs of the Rotterdam project, respectively?
3) Write up a one-page memo to summarize the evaluation results of Merseyside project versus
Rotterdam project, which are two mutually exclusive projects, in four situations: no erosion,
20% of erosion, 50% of erosion, and full erosion. Based on the evaluation results and the
nature of the two projects discussed in class, which project will you recommend accepting?
The memo should be addressed to James Fawn and your group is supposed to be John
Camperdown.

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Homework- Lecture 5 (Due Date: 11:59 PM, February 18, 2021) Note: This is a group work. Each group will turn in one copy of this homework. The quantitative analysis should be done in Excel and the writing work should be saved as PDF. Question 1: Use the Excel files “Victoria Chemicals_Case A_Revis ...
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Anonymous
Really useful study material!

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