Dixon

Dixon’s Purchase on Collinsville: The Victory of Laminate

Report for Dixon Corporation: The Collinsville Plant

Yangfan Chen

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Dixon’s Purchase on Collinsville: The Victory of Laminate Dixon has an opportunity to buy Collinsville plant, a plant used to produce sodium chlorate (NaClO3). With Collinsville, Dixon can therefore complete its production chain of chemicals used in paper and pulp industries. ut the price !merican char"ed, #$% million, seems to be relatively hi"h. &o'ever, in fact, the relatively hi"h price can be re"arded as an appreciation brou"ht by ne' technolo"y and relative services. herefore, Dixon should purchase Collinsville and pay for the laminate in $*+. * reasona+le '*CC for Collinsville irst of all, 'e need to "et a reasonable estimation of the pro-ects debt ratio. We assume that Dixon 'ill /eep the pro-ects pro-ects debt ratio the same as the entire companys companys debt ratio. 0lus 'e assume that the mar/et value of debt e1uals to boo/ value, because over *2 of the debt is ne'ly added. herefore, the debt ratio is $4.. his value



N0; of the 'hole pro-ect, 'hich is 9#242*+. 9#24 2*+. /s Laminate -orthy of the a00itional payment. he laminate technolo"y should be the main reason 'hy !merican !merican char"es Dixon for more fee on Collinsville plant than it should be. =f the 'hole pro-ect plus laminate can "enerate positive N0; under the most conservative estimation, then Dixon 'ill have enou"h reason to ta/e the pro-ect and accept the relatively hi"h purchasin" price.

o calculate the free cash flo' of the pro-ect 'ith laminate, 'e assume that the po'er cost can be saved by $2 per year, 'hich is the lo'est value of Dixons estimation. herefore, 'e "et the operatin" profit of Collinsville in each year from $*+9$* (!ppendix 2). hen 'e can calculate the free cash flo' in each of these years (!ppendix 4). inally 'e "et the N0; of the 'hole pro-ect, #8,%$3,32+. 5ince the



!ppendix % =ncome 5tatement of Collinsville 0lant 'ithout Gaminate 1980

1981

1982

1983

32,000 $415

35,000 $480

38,000 $520

38,000 $562

$13,280

$16,800

$19,760

$21,356

$6,304

$7,735

$9,386

$10,526

1984

19 1985

1986

1987

1988

1989

38,000 38 38000 $606 654.48 $23,028 24870.2 4

38000 706.838 4 26859.8 6

38000 763.385 5 29008.6 5

38000 824.456 3 31329.3 4

38000 890.412 8 33835.6 9

$11,780 1056.48 20 2 065.53 6 16 16315.6 2

14776.8 3 1125.15 1 2181.20 6 18083.1 9

1911. 1911.8 8

2102.9 2102.98 8

16550.0 5 1198.28 6 2303.35 4 20051.6 9 2313.27 8

389. 389.4 4 11 1150

428. 428.34 34 1150

3451.2 3451.2

3681.3 3681.32 2

18536.0 6 1276.17 5 2432.34 1 22244.5 7 2544.60 6 518.291 4 1150 4212.89 7

20760.3 9 1359.12 6 2568.55 2 24688.0 6 2799.06 6 570.120 5 1150 4519.18 7

Revenues

Sales-tons Average price/ton Sales - $000 Manufacturing costs

aria!le - "o#er

13193.6 - rap%ite - Salt & 't%er (otal varia!le )i*e+ - a!or - aintenance - 't%er (otal i*e+

645

791

875

940

992

1,285

1,621

1,753

1,836

1,956

$8,234

$10,147

$12,014

$13,302

$14,728

$1,180

$1,297

$1,427

$1,580

$1,738

256

277

299

322

354

1,154 $2,590

1,148 $2,722

1,179 $2,905

1,113 $3,015

1,153 $3,245

471. 471.17 174 4 1150 3934.45 2





Operating Profit

$833

$2,218

$3,035

$3,134

$3,026

2998.47 3

2914 2914.0 .07 7

2764.50 9

2536.76 1

2215.81 1

!ppendix 3 he 0lant ;alue, Capital
1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

10600 1060 500 0 10040

10040 1060 500 50 9430

9430 1060 500 100 8770

8770 1060 600 150 8160

8160 1060 600 210 7490

74 7 490 1060 600 270 6760

67 6 760 1060 600 330 5970

59 5 970 1060 60 6 00 390 5120

51 5 120 1060 60 6 00 450 4210

4210 1060 600 510 3240

1060

1110

1160

1210

1270

1330

1390

1450

1510

1570

Cap




1979

1980

1981

1982

833.00 833.00

2218.00 2218.00

3035.00

405.59

1079.94

1477.74

;

427.41

1138.06

1557.26

ap*

500.00

500.00

epreciation

500.00 1060.0 0

1110.00

1160.00

1328.0 0 598.00 598.00

1680 1680.0 .00 0

1976 1976.0 .00 0

A/ ;nventor

756.00 756.00

889.00 889.00

730.00 1196.0 0 -204.00

924.00

1087.00

1512.0 1512.00 0 316.00

1778.0 1778.00 0 266.00

1432.0 1432.06 6 1110.73

1951.2 1951.26 6 1280.90

:;( (a*

48.69<

A/"   =

))

1400

1191.4 1

1983 3134.0 0 1525.9 4 1608.0 6 600.00 1210.0 0 2136 2136.0 .0 0 961.00 961.00 1175.0 0 1922.0 0 144.00 2074.0 6

1984

1985

1986

1987

1988

1989

3026 3026.0 .00 0

2998 2998.4 .47 7

2914 2914.0 .07 7

2764 2764.5 .51 1

2536 2536.7 .76 6

2215 2215.8 .81 1

1473 1473.3 .36 6

1459 1459.9 .96 6

1418 1418.8 .86 6

1346 1346.0 .04 4

1235 1235.1 .15 5

1078 1078.8 .88 8

1552 1552.6 .64 4

1538 1538.5 .52 2

1495 1495.2 .21 1

1418 1418.4 .47 7

1301 1301.6 .61 1

1136. 136.93 93

600.00

600.00

600.00

600.00

600.00

600.00

1270 1270.0 .00 0

1330 1330.0 .00 0

1390 1390.0 .00 0

1450 1450.0 .00 0

1510 1510.0 .00 0

1570 1570.0 .00 0

1036.00 1036.00

2487 2487.2 .24 4 1118. 1118.88 88

2686 2686.2 .22 2 1208.39 1208.39

2901 2901.1 .12 2 1305.06 1305.06

3133 3133.2 .21 1 3383 3383.8 .86 6 1409.47 1409.47 1522.22 1522.22

1267 1267.0 .00 0

1368 1368.3 .36 6

1477 1477.8 .83 3

1596 1596.0 .06 6

1723 1723.7 .74 4

1861 1861.6 .64 4

2072 2072.0 .00 0 150.00

2237 2237.7 .76 6 165.76

2416 2416.7 .78 8 179.02

2610 2610.1 .12 2 193.34

2818 2818.9 .93 3 208.81

3044 3044.4 .45 5 225.51

2072 2072.6 .64 4 1525.19

2102 2102.7 .76 6 1667.07

2106 2106.1 .19 9 1824.16

2075 2075.1 .13 3 1998.16

2002 2002.8 .80 0 2190.98

1881 1881.4 .42 2 2404.74

2303.00







!ppendix 2 =ncome 5tatement of Collinsville 0lant 'ithout Gaminate evenes Sales-tons Average price/ton Sales - $000

1980

1981

1982

1983

32000 415

35000

38000

38000

480

520

562

13280

6304

1984 38000 606 2302 23028 8

16800

anactring costs aria!le - "o#er

19760

21356 10013

19 1985

1986

1987

1988

1989

38000

38000 706.838 4 26859.8 6

38000 763.385 5 29008.6 5

38000 824.456 3 31329.3 4

38000

12560.3

14067.5

15755.6

654.48 2487 24870. 0.2 2 4

890. 890.41 4128 28 3383 33835. 5.69 69





!ppendix 4 ree Cash lo' for Collinsville 0ro-ect 'ithout Gaminate 1979 :;( (a* ; ap* epreciation

48.6 48.69< 9<

1980 833. 833.00 00 405. 405.5 59 427. 427.41 41

1981 3944 3944.2 .25 5 1920. 920.46 46 2023 2023.7 .79 9

1982 5092 5092.9 .90 0 247 2479.73 9.73 2613 2613.1 .17 7

1983 5427 5427.9 .90 0 2642 2642.8 .84 4 2785 2785.0 .06 6

1984 5560 5560.0 .00 0 270 2707 7.16 .16 2852 2852.8 .84 4

1985 5808 5808.9 .99 9 282 2828 8.40 .40 2980 2980.5 .59 9

1986 6030 6030.7 .75 5 293 2936. 6.37 37 3094 3094.3 .38 8

1987 6220 6220.3 .30 0 3028 3028.6 .67 7 3191 3191.6 .64 4

1988 6368 6368.3 .34 4 310 3100 0.75 .75 3267 3267.6 .60 0

1989 6464 6464.0 .00 0 314 3147.32 7.32 3316 3316.6 .68 8

500.00 1060 1060.0 .00 0

500.00 1335 1335.0 .00 0

500.00 1385 1385.0 .00 0

600.00 1435 1435.0 .00 0

600.00 1495 1495.0 .00 0

600.00 1555 1555.0 .00 0

600.00 1615 1615.0 .00 0

600.00 1675 1675.0 .00 0

600.00 1735 1735.0 .00 0

600.00 1795 1795.0 .00 0





initial val[email protected] +e!t ratio@15< +e!t ratio@10< +e!t ratio@5< +e!t ratio@0

-2466.08 -2653.47 -2835.35 -3011.94

2287.69 1947.25 1617.39 1297.70

initial val[email protected]< #%en aret prei@6< #%en aret prei@7<

-2993.40 -3367 26

1331.23 656 17

Dixon

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