Case Stoody 2

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Case Study No. 1: American Chemical Corporation 1. Briefly provide a synopsis of the case and clearly describe the main problem raised in the case. (10 points)
American Chemical, a diverse chemical company in the late1970s, wanted to acquire, through a share buyout, Universal Paper Corporation. Universal sued them on the stance that it would violate an antitrust law, because its sodium-chlorate production division would digest Universal’s large division creating a lack of competition in the Southeast United States. To alleviate this, American Chemical divested that division in a plant they had in Collinsville Alabama, subsequently looking for a buyer, once they were able to acquire 91% of Universal. Dixon, another chemical company was the one for the job and wanted to purchase the Collinsville plant from American Chemical. Dixon’s motive is to diversify itself by obtaining a $12 million sodium chlorate plant to supply to paper producers in the Southeast. However, the plant had begun a new laminate technology to increase efficiency and profitability, and that accounted for an additional $2.25 million.
The main question of this case is not whether it was the correct decision for American to acquire Universal; it’s whether it’s a smart decision for Dixon to acquire the Alabama sodium chlorate plant from American Chemical. Dixon must determine the research for a CF Analysis with and without the acquisition of the plant and decide which produces a better NPV. In order to account for all possibilities, a cash flow analysis must be based with and without laminate technology. Attached is our decision and our reasoning:

2. 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…...

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