8

Click here to load reader

Merseyside

Embed Size (px)

DESCRIPTION

a

Citation preview

Page 1: Merseyside

Model Facts

Page 1

ECTN.XLS

Please note:

Revised: 3-Jun-98Copyright (C) 1998 by the Trustees of the University of Virginia Darden School Foundation.

This spreadsheet supports INSTRUCTOR analysis of the cases, "Empirical Chemicals (A) & (B)" (UVA -F-1020 and 1021 v. 2.3).

1) This is a working model. Assumptions / Inputs presented can be changed to vary the results.

2) As long as default spreadsheet calculation is "automatic" the impact of changing assumptions will be computed in real time. If calculation is set as "manual" you should press the F9 function key to

recalculate results. To set numerical calculation settings to automatic look under tools, options, calculations menu.

Page 2: Merseyside

Model Facts

Page 2

Copyright (C) 1998 by the Trustees of the University of Virginia Darden School Foundation.

Page 3: Merseyside

DISCOUNTED CASH FLOW COMPARISON

DCF Results of Base Cases (MM Pounds Sterling)No Erosion Full Erosion Other, Original

Where

Case

Merseyside Merseyside

DCF (base case) 6.07 5.67 2.62 3.17 2.36 12.28 10.85 IRR 21.6% 16.7% 14.9% 13.5% 19.2% 17.2% 16.8%WACC 9.0% 9.0% 9.0% 9.0% 13.0% 9.0% 9.0%Base Case 6.07 5.67 2.62 3.17 4.64 12.28 10.85

6.0% 8.73 9.63 4.56 6.47 6.97 21.24 19.427.0% 7.76 8.15 3.86 5.24 6.12 17.84 16.178.0% 6.88 6.84 3.21 4.15 5.35 14.87 13.339.0% 6.07 5.67 2.62 3.17 4.64 12.28 10.85

10.0% 5.34 4.63 2.08 2.31 4.00 10.00 8.6811.0% 4.66 3.69 1.59 1.54 3.41 8.01 6.7812.0% 4.04 2.86 1.13 0.86 2.86 6.26 5.1213.0% 3.47 2.12 0.71 0.25 2.36 4.71 3.6514.0% 2.94 1.45 0.32 -0.29 1.90 3.36 2.3715.0% 2.45 0.86 -0.04 -0.77 1.47 2.16 1.2416.0% 2.00 0.32 -0.38 -1.20 1.08 1.10 0.2417.0% 1.59 -0.16 -0.69 -1.58 0.71 0.16 -0.6418.0% 1.20 -0.59 -0.98 -1.93 0.37 -0.67 -1.4219.0% 0.84 -0.97 -1.24 -2.23 0.05 -1.40 -2.1120.0% 0.50 -1.32 -1.50 -2.50 -0.24 -2.05 -2.71

N.B.: Grey highlights region of "crossover".Source: Casewriter analysis.

Yes, ErosionRott. Mersey

6.0% 6.47 4.56 7.0% 5.24 3.86 8.0% 4.15 3.21 9.0% 3.17 2.62

10.0% 2.31 2.08 11.0% 1.54 1.59 12.0% 0.86 1.13 13.0% 0.25 0.71 14.0% -0.29 0.32 15.0% -0.77 -0.04 16.0% -1.20 -0.38 17.0% -1.58 -0.69 18.0% -1.93 -0.98 19.0% -2.23 -1.24 20.0% -2.50 -1.50

TN: "Memo"

TN: Exh. TN2

TN: "Memo"

(A) Case, Exhibit 2

(B) Case, Exhibit 1

(B) Case, Exhibit 1

Rotterdam, Excludes

Right-of-Way

Rotterdam, Excludes

Right-of-Way

Merseyside, Original Not

Revised

Rotterdam, Original With Right-of-Way,

No Erosion

Rotterdam, Original With Right-of-Way and Erosion

6% 7% 8% 9% 10%

11%

12%

13%

14%

15%

16%

17%

18%

19%

20%-2.00

0.00

2.00

4.00

6.00

8.00

10.00

12.00

NPV of Projects by Discount Rate(No Erosion at Other Plant)

MerseysideRotterdam

Discount Rate

NP

V

6% 8% 10%

12%

14%

16%

18%

20%

-4.00 -2.00 0.00 2.00 4.00 6.00 8.00

NPV of Projects by Discount Rate With Erosion at other Plant

Rotterdam

Merseyside

Discount Rate

NP

V

Page 4: Merseyside

Exhibit 2 VA-F-1020EMPIRICAL CHEMICALS (A)

Jim Hawkin's DCF Analysis of Merseyside Project(Financial values in millions of British Pounds)

AssumptionsAnnual Output (metric tons) 135,000 Discount rate 9.0%Output Gain/Original Output 7.0% Depreciable Life (years) 15Price/ton (pounds sterling) 611 Overhead/Investment 3.5%Inflation Rate (prices and costs) 0.0% Salvage Value 0Gross Margin (ex. Deprec.) 12.90% WIP Inventory/Cost of Goods 3.0%Old Gross Margin 11.5% Months Downtime, Construction 2Tax Rate 35.0% After-tax Scrap Proceeds 0Investment Outlay (mill.) 7.00 Preliminary Engineering Costs 0.5Energy Savings/Sales Yr. 1-5 1.0%

Yr. 6-10 0.5%Yr. 11-15 0.0%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15Year Now 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

1. Estimate of Incremental Gross ProfitNew Output (tons) 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 Lost Output--Construction (22,500)New Sales (Millions) 74.51 88.26 88.26 88.26 88.26 88.26 88.26 88.26 88.26 88.26 88.26 88.26 88.26 88.26 88.26 New Gross Margin 13.9% 13.9% 13.9% 13.9% 13.9% 13.4% 13.4% 13.4% 13.4% 13.4% 12.9% 12.9% 12.9% 12.9% 12.9%New Gross Profit 10.36 12.27 12.27 12.27 12.27 11.83 11.83 11.83 11.83 11.83 11.39 11.39 11.39 11.39 11.39

Old Output 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 Old Sales 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 Old Gross Profit 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 Incremental Gross Profit 0.87 2.78 2.78 2.78 2.78 2.34 2.34 2.34 2.34 2.34 1.90 1.90 1.90 1.90 1.90

2. Estimate of Incremental DepreciationNew Depreciation 0.93 0.81 0.70 0.61 0.53 0.46 0.40 0.34 0.32 0.32 0.32 0.32 0.32 0.32 0.32

3. Overhead 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 4. Prelim. Engineering Costs 0.50 5. Pretax Incremental Profit -0.81 1.73 1.84 1.93 2.01 1.64 1.70 1.75 1.78 1.78 1.33 1.33 1.33 1.33 1.33 6. Tax Expense -0.28 0.60 0.64 0.68 0.70 0.57 0.60 0.61 0.62 0.62 0.47 0.47 0.47 0.47 0.47

7. After-tax Profit -0.52 1.12 1.19 1.25 1.31 1.07 1.11 1.14 1.15 1.15 0.87 0.87 0.87 0.87 0.87 8. Cash Flow Adjustments Less Capital Expend -7.00 Add back Depreciation 0.93 0.81 0.70 0.61 0.53 0.46 0.40 0.34 0.32 0.32 0.32 0.32 0.32 0.32 0.32 Less Added WIP inventory 0.27 -0.36 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 After-tax Scrap Proceeds 0.00

8. Free Cash Flow -7.00 0.67 1.58 1.89 1.86 1.83 1.52 1.50 1.48 1.47 1.47 1.19 1.19 1.19 1.19 1.19

NPV = 4.64 IRR = 19.2%

Page 5: Merseyside

Exhibit 1 VA-F-1021EMPIRICAL CHEMICALS (B)

ANALYSIS OF ROTTERDAM PROJECT(Values in British Pounds)

AssumptionsAnnual Output (metric tons) 135,000 Setup and Labor Savings/Sales (yr.1) 0.0%Output Gain Per Year/Prior Year 2.0% Discount rate 9.0%Maximum Possible Output 144,450 Depreciable Life (years) 15Price/ton (pounds sterling) 611 Overhead/Investment 3.5%Inflation (prices and costs) 0.0% Salvage Value 0Gross Margin Growth Rate/Year 0.80% WIP Inventory/Cost of Goods Sold 3.0%Maximum Possible Gross Margin 16.5% Terminal Value of Right-of-Way 35Old Gross Margin 11.5% Months Downtime, Construction 1992 5Tax Rate 35.0% 1993 4Investment Outlay (millio Now 3 1994 3

End, 1992 2 1995 01993 1.51994 1

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15Year Now 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

1. Estimate of Incremental Gross ProfitNew Output 137,700 140,454 143,263 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 Lost Output--Construction (57,375) (46,818) (35,816) 0 New Sales (Millions) 49.08 57.21 65.65 88.26 88.26 88.26 88.26 88.26 88.26 88.26 88.26 88.26 88.26 88.26 88.26 New Gross Margin 11.6% 11.8% 12.1% 12.5% 13.0% 13.6% 14.4% 15.3% 16.5% 16.5% 16.5% 16.5% 16.5% 16.5% 16.5%New Gross Profit 5.69 6.74 7.92 10.99 11.44 12.00 12.69 13.52 14.53 14.56 14.56 14.56 14.56 14.56 14.56

Old Output 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 Old Sales 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 Old Gross Profit 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 Incremental Gross Profit -3.80 -2.75 -1.57 1.51 1.95 2.51 3.20 4.04 5.04 5.08 5.08 5.08 5.08 5.08 5.08

2. Estimate of Incremental DepreciationYr. 1 Outlays 0.27 0.23 0.20 0.17 0.15 0.13 0.11 0.10 0.10 0.09 0.09 0.09 0.09 0.09 0.09 Yr. 2 Outlays 0.21 0.18 0.16 0.13 0.12 0.10 0.08 0.08 0.08 0.07 0.07 0.07 0.07 0.07 Yr. 3 Outlays 0.15 0.13 0.11 0.09 0.08 0.07 0.06 0.06 0.05 0.05 0.05 0.05 0.05 Total, New Depreciation 0.27 0.45 0.54 0.46 0.40 0.34 0.29 0.25 0.24 0.23 0.21 0.21 0.21 0.21 0.21

3. Overhead 0 0 0 0 0 0 0 0 0 0 0 0 0 0 04. Pretax Incremental Profit -4.06 -3.19 -2.10 1.04 1.56 2.17 2.91 3.79 4.80 4.85 4.87 4.87 4.87 4.87 4.87 5. Tax Expense -1.42 -1.12 -0.74 0.37 0.54 0.76 1.02 1.33 1.68 1.70 1.70 1.70 1.70 1.70 1.70 6. After-tax Profit -2.64 -2.08 -1.37 0.68 1.01 1.41 1.89 2.46 3.12 3.15 3.16 3.16 3.16 3.16 3.16 7. Cash Flow Adjustments

Add back Depreciation 0.27 0.45 0.54 0.46 0.40 0.34 0.29 0.25 0.24 0.23 0.21 0.21 0.21 0.21 0.21 Less added WIP inventory 0.89 -0.21 -0.22 -0.59 0.01 0.02 0.02 0.03 0.03 0.00 0.00 0.00 0.00 0.00 0.00 Capital Spending 3.00 2.00 1.50 1.00Terminal Value, land 35.00

8. Free Cash Flow -3.00 -5.26 -2.92 -1.61 1.73 1.39 1.74 2.16 2.69 3.33 3.38 3.37 3.37 3.37 3.37 38.37 DCF, Rotterdam = 12.28 IR, Rotterdam = 17.2%

9. Adjustment for erosion in Merseyside volume:Lost Merseyside Output - - - 9,450 9,450 9,450 9,450 9,450 9,450 9,450 9,450 9,450 9,450 9,450 9,450 Lost Merseyside Revenue - - - 5.77 5.77 5.77 5.77 5.77 5.77 5.77 5.77 5.77 5.77 5.77 5.77 Lost Merseyside Gross Profits - - - 0.66 0.66 0.66 0.66 0.66 0.66 0.66 0.66 0.66 0.66 0.66 0.66 Lost Gross Profits after Taxes - - - 0.43 0.43 0.43 0.43 0.43 0.43 0.43 0.43 0.43 0.43 0.43 0.43 Change in Merseyside Inventory - - - 0.17 0.17 0.17 0.17 0.17 0.17 0.17 0.17 0.17 0.17 0.17 0.17 Total Effect on Free Cash Flow - - - (0.26) (0.26) (0.26) (0.26) (0.26) (0.26) (0.26) (0.26) (0.26) (0.26) (0.26) (0.26)DCF, Erosion Merseyside (1.43)

DCF, Rotterdam Adjusted for FullErosion at Merseyside = 10.85

Page 6: Merseyside

Merseyside Proposal: Part A(Reflects charge for full erosionof Rotterdam business volume)

AssumptionsAnnual Output (metric tons) 135,000 Discount rate 9.0%Output Gain/Original Output 7.0% Depreciable Life (years) Plant 15 Price/ton (pounds sterling) 611.00 Depreciable Life (yrs.) Tank Cars 10Inflation (prices and costs) 0.0% Overhead/Investment 3.5%Gross Margin (ex. Deprec.) 12.9% Salvage Value 0 Old Gross Margin 11.5% WIP Inventory/Cost of Goods 3.0%Tax Rate 35.0% Months Downtime, Construction 2 Investment Outlay (mill.) - Plant 7 After-tax Scrap Proceeds 0Investment in Tank Cars 2.0 Energy Savings/Sales Yr. 1-5 1.0%

Yr. 6-10 0.5%Yr. 11-15 0.0%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15Year Now 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

1. Estimate of Incremental Gross ProfitNew Output 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 Lost Output--Construction (22,500)New Sales (Millions) 74.51 88.26 88.26 88.26 88.26 88.26 88.26 88.26 88.26 88.26 88.26 88.26 88.26 88.26 88.26 New Gross Margin 13.9% 13.9% 13.9% 13.9% 13.9% 13.4% 13.4% 13.4% 13.4% 13.4% 12.9% 12.9% 12.9% 12.9% 12.9%New Gross Profit 10.36 12.27 12.27 12.27 12.27 11.83 11.83 11.83 11.83 11.83 11.39 11.39 11.39 11.39 11.39

Old Output 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 Old Sales 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 Old Gross Profit 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49

Lost Rotterdam Output (MT) 9,450 9,450 9,450 9,450 9,450 9,450 9,450 9,450 9,450 9,450 9,450 9,450 9,450 9,450 9,450 Lost Revenue 5.77 5.77 5.77 5.77 5.77 5.77 5.77 5.77 5.77 5.77 5.77 5.77 5.77 5.77 5.77 Lost Rotterdam Gross Profit 0.66 0.66 0.66 0.66 0.66 0.66 0.66 0.66 0.66 0.66 0.66 0.66 0.66 0.66 0.66

Incremental Gross Profit 0.21 2.12 2.12 2.12 2.12 1.68 1.68 1.68 1.68 1.68 1.24 1.24 1.24 1.24 1.24

2. Estimate of Incremental Depreciation+ New Depreciation, Plant 0.93 0.81 0.70 0.61 0.53 0.46 0.40 0.34 0.32 0.32 0.32 0.32 0.32 0.32 0.32 + New Depreciation,Tank Cars 0.40 0.32 0.26 0.20 0.16 0.13 0.13 0.13 0.13 0.13 0.00 0.00 0.00 - Old Depreciation, Tank Cars 0.40 0.32 0.26 0.20 0.16 0.13 0.13 0.13 0.13 0.13 0.00 Total Change in Depreciation 0.93 0.81 1.10 0.93 0.38 0.34 0.30 0.27 0.29 0.32 0.32 0.32 0.19 0.19 0.32

3. Pretax Incremental Profit -0.73 1.31 1.02 1.19 1.74 1.34 1.37 1.41 1.39 1.36 0.92 0.92 1.05 1.05 0.92 4. Tax Expense -0.25 0.46 0.36 0.42 0.61 0.47 0.48 0.49 0.49 0.48 0.32 0.32 0.37 0.37 0.32 5. After-tax Profit -0.47 0.85 0.66 0.77 1.13 0.87 0.89 0.92 0.90 0.88 0.60 0.60 0.68 0.68 0.60

6. Cash Flow AdjustmentsAdd back Depreciation 0.93 0.81 1.10 0.93 0.38 0.34 0.30 0.27 0.29 0.32 0.32 0.32 0.19 0.19 0.32 Change in WIP Inventory At Merseyside 0.27 -0.36 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.09 At Rotterdam -0.27 0.36 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.09 Capital Investment -7.00 -2.00 2.00 After-tax Scrap Proceeds 0.00

7. Free Cash Flow -7.00 0.46 1.66 -0.24 1.70 3.51 1.21 1.20 1.18 1.19 1.20 0.92 0.92 0.87 0.87 0.92

NPV = 2.62 IRR = 14.9%

Page 7: Merseyside

Merseyside Proposal: Part B(Reflects no charge for erosionof Rotterdam business volume)

AssumptionsAnnual Output (metric tons) 135,000 Discount rate 9.0%Output Gain/Original Output 7.0% Depreciable Life (years) Plant 15 Price/ton (pounds sterling) 611 Depreciable Life (yrs.) Tank Cars 10Inflation (prices and costs) 0.0% Overhead/Investment 3.5%Gross Margin (ex. Deprec.) 12.9% Salvage Value 0.0%Old Gross Margin 11.5% WIP Inventory/Cost of Goods Sold 3.0%Tax Rate 35.0% Months Downtime, Construction 2 Investment Outlay (mill.) - Plant 7 After-tax Scrap Proceeds 0 Investment in Tank Cars 2 Energy Savings/Sales Yr. 1-5 1.0%

Yr. 6-10 0.5%Yr. 11-15 0.0%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15Year Nos 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

1. Estimate of Incremental Gross ProfitNew Output 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 Lost Output--Construction (22,500)New Sales (Millions) 74.51 88.26 88.26 88.26 88.26 88.26 88.26 88.26 88.26 88.26 88.26 88.26 88.26 88.26 88.26 New Gross Margin 13.9% 13.9% 13.9% 13.9% 13.9% 13.4% 13.4% 13.4% 13.4% 13.4% 12.9% 12.9% 12.9% 12.9% 12.9%New Gross Profit 10.36 12.27 12.27 12.27 12.27 11.83 11.83 11.83 11.83 11.83 11.39 11.39 11.39 11.39 11.39

Old Output 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 Old Sales 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 Old Gross Profit 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 Incremental Gross Profit 0.87 2.78 2.78 2.78 2.78 2.34 2.34 2.34 2.34 2.34 1.90 1.90 1.90 1.90 1.90

2. Estimate of Incremental Depreciation+ New Depreciation-Plant 0.93 0.81 0.70 0.61 0.53 0.46 0.40 0.34 0.32 0.32 0.32 0.32 0.32 0.32 0.32 + New Depreciation, Tank Cars 0.40 0.32 0.26 0.20 0.16 0.13 0.13 0.13 0.13 0.13 0.00 0.00 0.00 - Old Depreciation, Tank Cars 0.40 0.32 0.26 0.20 0.16 0.13 0.13 0.13 0.13 0.13 0.00 Total Change in Depreciation 0.93 0.81 1.10 0.93 0.38 0.34 0.30 0.27 0.29 0.32 0.32 0.32 0.19 0.19 0.32

4. Pretax Incremental Profit -0.06 1.97 1.68 1.85 2.40 2.00 2.04 2.07 2.05 2.02 1.58 1.58 1.71 1.71 1.58 5. Tax Expense -0.02 0.69 0.59 0.65 0.84 0.70 0.71 0.73 0.72 0.71 0.55 0.55 0.60 0.60 0.55 6. After-tax Profit -0.04 1.28 1.09 1.21 1.56 1.30 1.32 1.35 1.34 1.31 1.03 1.03 1.11 1.11 1.03

7. Cash Flow AdjustmentsAdd back Depreciation 0.93 0.81 1.10 0.93 0.38 0.34 0.30 0.27 0.29 0.32 0.32 0.32 0.19 0.19 0.32 Added WIP inventory 0.27 -0.36 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.09 Capital Investment -7.00 -2.00 2.00 After-tax Scrap Proceeds 0.00

8. Free Cash Flow -7.00 1.16 1.74 0.19 2.13 3.94 1.64 1.63 1.62 1.62 1.63 1.35 1.35 1.30 1.30 1.44

DCF = 6.07 IRR = 21.6%

Page 8: Merseyside

Exh. TN2

Page 8

ANALYSIS OF ROTTERDAM PROJECTExcluding Impact of the Right-of-Way Investment

(Financial values in millions of British Pounds)

AssumptionsAnnual Output (metric tons) 135,000 Setup and Labor Savings/Sales (yr.1) 0.0%Output Gain Per Year/Prior Year 2.0% Discount rate 9.0%Maximum Possible Output 144,450 Depreciable Life (years) 15Price/ton (pounds sterling) 611 Overhead/Investment 3.5%Inflation (prices and costs) 0.0% Salvage Value 0Gross Margin Growth Rate Per Year 0.80% WIP Inventory/Cost of Goods Sold 3.0%Maximum Possible Gross Margin 16.5% Terminal Value of Right-of-Way 0Old Gross Margin 11.5% Months Downtime, Construction 1992 5Tax Rate 35.0% 1993 4Investment Outlay (millions) Now 0 1994 3

End, 1992 2 1995 01993 1.51994 1

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15Year 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

1. Estimate of Incremental Gross ProfitNew Output 137,700 140,454 143,263 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 144,450 Lost Output--Construction (57,375) (46,818) (35,816) 0 New Sales (Millions) 49.08 57.21 65.65 88.26 88.26 88.26 88.26 88.26 88.26 88.26 88.26 88.26 88.26 88.26 88.26 New Gross Margin 11.6% 11.8% 12.1% 12.5% 13.0% 13.6% 14.4% 15.3% 16.5% 16.5% 16.5% 16.5% 16.5% 16.5% 16.5%New Gross Profit 5.69 6.74 7.92 10.99 11.44 12.00 12.69 13.52 14.53 14.56 14.56 14.56 14.56 14.56 14.56

Old Output 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 Old Sales 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 Old Gross Profit 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 9.49 Incremental Gross Profit -3.80 -2.75 -1.57 1.51 1.95 2.51 3.20 4.04 5.04 5.08 5.08 5.08 5.08 5.08 5.08

2. Estimate of Incremental DepreciationYr. 1 Outlays 0.27 0.23 0.20 0.17 0.15 0.13 0.11 0.10 0.10 0.09 0.09 0.09 0.09 0.09 0.09 Yr. 2 Outlays 0.21 0.18 0.16 0.13 0.12 0.10 0.08 0.08 0.08 0.07 0.07 0.07 0.07 0.07 Yr. 3 Outlays 0.15 0.13 0.11 0.09 0.08 0.07 0.06 0.06 0.05 0.05 0.05 0.05 0.05 Total, New Depreciation 0.27 0.45 0.54 0.46 0.40 0.34 0.29 0.25 0.24 0.23 0.21 0.21 0.21 0.21 0.21

3. Overhead 0 0 0 0 0 0 0 0 0 0 0 0 0 0 04. Pretax Incremental Profit -4.06 -3.19 -2.10 1.04 1.56 2.17 2.91 3.79 4.80 4.85 4.87 4.87 4.87 4.87 4.87 5. Tax Expense -1.42 -1.12 -0.74 0.37 0.54 0.76 1.02 1.33 1.68 1.70 1.70 1.70 1.70 1.70 1.70 6. After-tax Profit -2.64 -2.08 -1.37 0.68 1.01 1.41 1.89 2.46 3.12 3.15 3.16 3.16 3.16 3.16 3.16 7. Cash Flow Adjustments

Add back Depreciation 0.27 0.45 0.54 0.46 0.40 0.34 0.29 0.25 0.24 0.23 0.21 0.21 0.21 0.21 0.21 Less added WIP inventory 0.89 -0.21 -0.22 -0.59 0.01 0.02 0.02 0.03 0.03 0.00 0.00 0.00 0.00 0.00 0.00 Capital Spending 0.00 2.00 1.50 1.00Terminal Value, land -

8. FCF, Zero Erosion 0.00 -5.26 -2.92 -1.61 1.73 1.39 1.74 2.16 2.69 3.33 3.38 3.37 3.37 3.37 3.37 3.37

DCF, no erosion = 5.67 IRR, no erosion = 16.7%

9. Adjustment for full erosion in Merseyside volume:Lost Merseyside Output - - - 9,450 9,450 9,450 9,450 9,450 9,450 9,450 9,450 9,450 9,450 9,450 9,450 Lost Merseyside Revenue - - - 5.77 5.77 5.77 5.77 5.77 5.77 5.77 5.77 5.77 5.77 5.77 5.77 Lost Merseyside Gross Profits - - - 0.66 0.66 0.66 0.66 0.66 0.66 0.66 0.66 0.66 0.66 0.66 0.66 Lost Gross Profits after Taxes - - - 0.43 0.43 0.43 0.43 0.43 0.43 0.43 0.43 0.43 0.43 0.43 0.43 Change in Merseyside Inventory 0.00 0.00 0.00 -0.15 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Total Effect on Free Cash F - - - - (0.58) (0.43) (0.43) (0.43) (0.43) (0.43) (0.43) (0.43) (0.43) (0.43) (0.43) (0.43)