Dupont Case
Overview
In 1972, Du Pont found itself in a fortunate position as it was faced with the following two options:
1. Continue with its existing strategy and maintain its current revenue stream; or
2. Modify its strategy and invest additional capital to increase its revenue stream in the future.
As one can imagine, multi-million dollar investment decisions such as these are not easily made and require a tremendous amount of due diligence to include financial forecasting, labor ramifications, and extensive research.
Market Position
Du Pont's position in the market was fortunate for several reasons. First, Du Pont was a leader in the Titanium Dioxide industry possessing the highest capacity for use of the ilmelite chloride process. Two …show more content…
While the pigments department, responsible for the production of titanium dioxide, was an important part of Du Pont's holdings, it was still the second smallest of Du Pont's ten departments. Therefore, the risk associated with the pigment department was fairly …show more content…
For example, cost overruns, regulation, and the development of huge economies of scale were risks that were obviously present for Du Pont. However, it already had the funding and expertise to build these facilities and could do so more effectively than any present competitor. The company also had the name and established corporate presence necessary to facilitate such development. With the contacts Du Pont had established throughout the political and labor world, it would likely encounter fewer problems than any other company seeking to enter the industry or expand in it.
Consequently, the risks surrounding these future cash flows appear to be minimal. Du Pont has the most cost effective and environmentally clean process, and there appears to be no shortage of the necessary raw material given that it was just discovered a few years prior. As a result, the growth strategy appears to be the more attractive option.
Du Pont should examine other factors as well. For example, it should determine whether or not there is a better use for the capital inside the company. With no knowledge of other opportunities, it is difficult to get a gauge where it should apply its excess capital. As our analysis shows, it would be difficult to exceed the NPV gain of $80M(+) in choosing the "growth" strategy over the "maintain"
In 1972, Du Pont found itself in a fortunate position as it was faced with the following two options:
1. Continue with its existing strategy and maintain its current revenue stream; or
2. Modify its strategy and invest additional capital to increase its revenue stream in the future.
As one can imagine, multi-million dollar investment decisions such as these are not easily made and require a tremendous amount of due diligence to include financial forecasting, labor ramifications, and extensive research.
Market Position
Du Pont's position in the market was fortunate for several reasons. First, Du Pont was a leader in the Titanium Dioxide industry possessing the highest capacity for use of the ilmelite chloride process. Two …show more content…
While the pigments department, responsible for the production of titanium dioxide, was an important part of Du Pont's holdings, it was still the second smallest of Du Pont's ten departments. Therefore, the risk associated with the pigment department was fairly …show more content…
For example, cost overruns, regulation, and the development of huge economies of scale were risks that were obviously present for Du Pont. However, it already had the funding and expertise to build these facilities and could do so more effectively than any present competitor. The company also had the name and established corporate presence necessary to facilitate such development. With the contacts Du Pont had established throughout the political and labor world, it would likely encounter fewer problems than any other company seeking to enter the industry or expand in it.
Consequently, the risks surrounding these future cash flows appear to be minimal. Du Pont has the most cost effective and environmentally clean process, and there appears to be no shortage of the necessary raw material given that it was just discovered a few years prior. As a result, the growth strategy appears to be the more attractive option.
Du Pont should examine other factors as well. For example, it should determine whether or not there is a better use for the capital inside the company. With no knowledge of other opportunities, it is difficult to get a gauge where it should apply its excess capital. As our analysis shows, it would be difficult to exceed the NPV gain of $80M(+) in choosing the "growth" strategy over the "maintain"