E.I. DU PONT DE NEMOURS AND CO.

: TITANIUM DIOXIDE

Key assumptions:
Invest. Credit (p4, pa3) 10%
Existing capacity 325
NWC/ sales (p4. pa3) 20%
Tax rate (p.4, f.note 4) 48%
Data on market shares, capcity and costs
1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985
Market size ('000 t) 752 774 798 822 846 872 898 925 952 981 1010 1041 1072
Market share (%):
Maintain 35% 40% 45% 45% 45% 45% 45% 45% 45% 45% 45% 45% 45%
Growth 35% 40% 47% 47% 51% 52% 52% 55% 58% 59% 61% 62% 64%
Selling price ($ per tonne)
Maintain 555 665 760 890 955 1015 1070 1120 1170 1210 1270 1320 1370
Growth 540 640 750 880 950 1010 1070 1130 1190 1250 1310 1370 1430
Operating costs ($ /t) 330 390 460 540 580 620 660 690 710 740 770 810 850
Capacity (000 t):
Maintain 340 350 360 370 381 392 404 416 428 441 455 468 482
Growth 350 375 400 421 443 475 505 530 552 579 616 645 685
Capacity cost ($/t) 900 927 955 983 1013 1043 1075 1107 1140 1174 1210 1246 1283

Incremental free cash flow : Maintain - Existing

1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985
(A) Incremental PBIT (1-T)
Sales ('000 t) 263.2 309.6 359.1 369.9 380.7 392.4 404.1 416.3 428.4 441.5 454.5 468.5 482.4
Inc. sales ('000 t) 0.0 0.0 34.1 44.9 55.7 67.4 79.1 91.3 103.4 116.5 129.5 143.5 157.4
Inc. sales ($ m.) 0.0 0.0 25.9 40.0 53.2 68.4 84.6 102.2 121.0 140.9 164.5 189.4 215.6
Inc. Op. costs ($ m.) 0.0 0.0 15.7 24.2 32.3 41.8 52.2 63.0 73.4 86.2 99.7 116.2 133.8
Inc. PBIT ($ m.) 0.0 0.0 10.2 15.7 20.9 26.6 32.4 39.2 47.6 54.7 64.8 73.2 81.8
Inc. PBIT (1-T) ($ m.) 0.0 0.0 5.3 8.2 10.9 13.8 16.9 20.4 24.7 28.5 33.7 38.0 42.6

(B) Incremental investment

1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985
Inc. NWC (20% of sales) 0.0 0.0 5.18 2.81 2.65 3.04 3.25 3.51 3.76 3.99 4.71 4.98 5.26 0.00
Inc. capacity (000 t) 15.0 10.0 10.0 10.0 11.0 11.0 12.0 12.0 12.0 13.0 14.0 13.0 14.0 0.0
Invest. Capacity ($ m.) 13.5 9.3 9.6 9.8 11.1 11.5 12.9 13.3 13.7 15.3 16.9 16.2 18.0 0.0
Total. Inc. investment ($ m.) 13.5 9.3 14.7 12.6 13.8 14.5 16.1 16.8 17.4 19.2 21.7 21.2 23.2 0.0
Less: Investment credit 1.4 0.9 1.0 1.0 1.1 1.1 1.3 1.3 1.4 1.5 1.7 1.6 1.8 0.0
Net incr. investment ($ m.) 12.2 8.3 13.8 11.7 12.7 13.4 14.9 15.5 16.1 17.7 20.0 19.6 21.4 0.0
Investment recovery - 1985 214.1
Inc. FCFF ($ m.) (12.15) (8.34) (13.78) (6.34) (4.50) (2.51) (1.01) 1.40 4.34 7.01 8.5 14.1 16.6 256.7
Incremental free cash flow : Growth - Existing
1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985
(A) Incremental PBIT (1-T)
Sales ('000 t) 263.2 309.6 375.1 386.3 431.5 453.4 467.0 508.8 552.2 578.8 616.1 645.4 686.1
Inc. sales - ('000 t) 0.0 0.0 50.1 61.3 106.5 128.4 142.0 183.8 227.2 253.8 291.1 320.4 361.1
Inc. sales - old capacity ($ m.) (3.95) (7.74) (3.25) (3.25) (1.63) (1.63) 0.00 3.25 6.50 13.00 13.00 16.25 19.50
Inc. sales - new capacity ($ m.) 0.00 0.00 37.55 53.98 101.14 129.72 151.90 207.64 270.32 317.24 381.34 438.98 516.34
Total Inc. sales ($ m.) (3.95) (7.74) 34.30 50.73 99.51 128.10 151.90 210.89 276.82 330.24 394.34 455.23 535.84
Alternatively - Total incr. sales Sal.x PG- Sal.x PM Sales x PG - 325 x PM
Inc. Op. costs ($ m.) 0.0 0.0 23.0 33.1 61.7 79.6 93.7 126.8 161.3 187.8 224.1 259.5 306.9
Inc. PBIT ($ m.) (3.9) (7.7) 11.3 17.6 37.8 48.5 58.2 84.1 115.5 142.4 170.2 195.7 228.9
Inc. PBIT (1-T) ($ m.) (2.1) (4.0) 5.9 9.2 19.6 25.2 30.3 43.7 60.1 74.1 88.5 101.8 119.0

(B) Incremental investment

1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985
Inc. NWC (20% of sales) (0.79) (0.76) 8.4 3.3 9.8 5.7 4.8 11.8 13.2 10.7 12.8 12.2 16.1 0.0
Inc. capacity (000 t) 25.0 25.0 25.0 21.0 22.0 32.0 30.0 25.0 22.0 27.0 37.0 29.0 40.0 0.0
Invest. Capacity ($ m.) 22.5 23.2 23.9 20.6 22.3 33.4 32.3 27.7 25.1 31.7 44.8 36.1 51.3 0.0
Total. Inc. investment ($ m.) 21.7 22.4 32.3 23.9 32.0 39.1 37.0 39.5 38.3 42.4 57.6 48.3 67.4 0.0
Less: Investment credit 2.3 2.3 2.4 2.1 2.2 3.3 3.2 2.8 2.5 3.2 4.5 3.6 5.1 0.0
Net incr. investment ($ m.) 19.5 20.1 29.9 21.9 29.8 35.8 33.8 36.7 35.8 39.2 53.1 44.7 62.3 0.0
Investment recovery - 1985 502.0
(C) Inc. FCFF ($ m.) (19.46) (22.15) (33.92) (16.01) (20.66) (16.12) (8.58) (6.44) 7.97 20.87 20.95 43.80 39.44 620.99
Incremental cash flow: Growth - Mainatin
1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985
(7.3) (13.8) (20.1) (9.7) (16.2) (13.6) (7.6) (7.8) 3.6 13.9 12.4 29.7 22.8 364.3

Investment M-E G-E G-M Analysis IRR NPV @ 15%

Cum. capex 171.0 394.8 223.8 M-E 18.7% 15.65
Cum. WC 43.1 107.2 64.0 G-E 18.0% 30.58
Total cum. Invest 214.1 502.0 287.8 G-M 17.6% 14.93
Invest. net of tx.cr 198.4 464.7 266.4 Rate of discount 15% a
Base Case: No opportunity cost for Jell-O facilities, no allocated overheads, no cannibalization loss
Year FCFF
1967 (495.65)
1968 (9.88)
1969 49.54
1970 118.96
1971 243.88
1972 361.80
1973 347.80
1974 391.42
1975 377.42
1976 425.14
1977 751.14

Assumes:
1 Capex 160 in 1967 and 40 in 1968
2 Tax 49%
3 Start-up costs paid in 1967
4 Investment tax credit at the rate of 1.0 from 1967 to 1974
5 Recovery full book value in 1977