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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
0
Year
Now
1. Estimate of Incremental Gross Profit
New Output (tons)
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
New Depreciation
New 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 Capital Expenditures
Add back Depreciation
Less Added WIP inventory

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)
2
2002

3
2003

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

0.33
0.08
-0.14
0.00

0.43
0.17
-0.11
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

4.28
1.28

4.45
1.34

0.46

2.40

2.32

2.55

3.06

2.62

2.75

2.86

3.00

1.04
-0.47

-2.00
1.30
0.00

1.10
0.00

2.12
0.51
-0.01

0.45
-0.03

0.40
-0.01

0.36
-0.01

2.97

1.61

3.65

5.69

3.04

3.14

17,500
10.35
1.19
0.83
0.31
(0.52)

17,500
10.66
1.23
0.86
0.32
(0.54)

17,500
10.98
1.26
0.88
0.33
(0.55)

17,500
11.30
1.30
0.91
0.34
(0.57)

1.20
0.31

183.32
13.3%
24.29

267,500

11
2011

250,000
156.79
18.03
4.20

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

250,000
7.0%
541
3.0%
12.50%
11.5%
30.0%
9.00
1.25%
0.8%
0.0%
1
2001

188.82
13.3%
25.02

267,500
194.49
12.5%
24.31
250,000
181.76
20.90
3.41

12
2012
267,500
200.32
12.5%
25.04
250,000
187.22
21.53
3.51

13
2013
267,500
206.33
12.5%
25.79

14
2014
267,500
212.52
12.5%
26.57

15
2015
267,500
218.90
12.5%
27.36

250,000
192.83
22.18
3.62

250,000
198.62
22.84
3.72

250,000
204.58
23.53
3.84

0.43
0.17
-0.09
0.00

0.43

0.43

0.43

0.00

0.00

0.00

2.92
0.88

3.00
0.90

3.19
0.96

3.29
0.99

3.41
1.02

3.12

2.04

2.10

2.23

2.31

2.38

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

3.22

3.30

3.38

2.48

2.60

2.65

2.73

3.13

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 =
IRR =
31.2%
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
DCF, Erosion Rotterdam
(3.85)
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)

Year
1. Estimate of Incremental Gross Profit
New Output
Lost Output--Construction
New Sales (Millions)
New Gross Margin
New Gross Profit

Now
2001
2002
2003
0
Now

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

250,000
2.0%
267,500
541
3.0%
0.80%
16.0%
11.5%
30.0%
3.5
2.5
1
1
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

250,000
192.83
22.18
10.84

250,000
198.62
22.84
11.16

250,000
204.58
23.53
11.50

0.30
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

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

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

158.14
12.5%
19.69

5
2005
267,500
162.88
13.0%
21.11

2001
2002
2003
2004

10.0%
15
3.5%
0
3.0%
35
5
4
3
0

6
2006

7
2007

267,500
167.77
13.6%
22.81

267,500
172.80
14.4%
24.84

8
2008
267,500
177.98
15.3%
27.27

9
2009
267,500
183.32
16.0%
29.33

10
2010
267,500
188.82
16.0%
30.21

11
2011
267,500
194.49
16.0%
31.12

12
2012
267,500
200.32
16.0%
32.05

13
2013
267,500
206.33
16.0%
33.01

14
2014
267,500
212.52
16.0%
34.00

15
2015
267,500
218.90
16.0%
35.02

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)

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

Capital Spending
3.50
2.50
1.00
1.00
Terminal Value, land
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
DCF, Erosion Merseyside
(3.27)
Rate of Cannibalization
100%
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)

8.04

17,500
14.32
1.65
1.15
0.38
(0.77)