DuPont Case Questions
Please submit your case via CANVAS. You will scan this
document and submit it AND you will submit your Excel
Spreadsheet for the Maintain and Growth strategies.
Here are the questions that your group is required to answer for Case #6
1. The pigment division manager says that the objective of the growth strategy is to
boost Du Pont’s share of the market to almost 65%. Explain how Du Pont could
achieve this goal. (10pts.)
2. When looking at Du Pont’s competitors what is the one thing that they each
could do that would make the growth strategy unsuccessful? Support your answer.
(10 pts.)
3. Du Pont plans to continue indefinitely in the titanium dioxide business. So you
need to determine a terminal value in 1985 for each strategy. Write out the formula
you are using to determine the terminal value and clearly provide the numbers you
are using to make your calculation.
A. What is the terminal value for the Maintain strategy in 1985? (10 pts.)
FCF = Free Cash Flow in Final Period: 21.138
g = Terminal Growth Rate = annual growth rate of TiO2 demand: 3%
4)
r = Discount Rate (cost of capital) : 10%
(exhibit
B. What is the terminal value for the growth strategy in 1985? (10 pts.)
FCF = Free Cash Flow in Final Period: 47.24 million
g = Terminal Growth Rate = annual growth rate of TiO2 demand: 3%
(exhibit
4)
**terminal growth rate assumes DuPont’s growth efforts stop after 1985,
as none are specified, that and they maintain their market share from that year
C. If Du Pont decides to select the Maintain strategy, what is the net present value of
this investment? (10 pts.)
r = 10%
D. If Du Pont decides to select the growth strategy, what is the net present value of
this investment? (10 pts.)
E. Explain and calculate the rate of return that Du Pont should expect to generate from
the Maintain strategy? (Assume the 10% cost of capital still holds for the terminal value
aspect of this calculation) (10 pts.)
*Cash flow in 1985 is added to the terminal value of that year
F. Explain and calculate the rate of return that Du Pont should expect to generate
from the growth strategy? (Assume the 10% cost of capital still holds for the terminal
value aspect of this calculation) (10 pts.)
4. Is the Maintain strategy or the growth strategy the most risky for Du Pont to
invest in? Explain why one strategy is more risky than the other. You don’t need to
use any numeric calculations to determine the risk. Your answers should be based
on what you have learned from the marketplace in which Du Pont is operating. (10
pts.)
5. Now consider the Growth Strategy versus the Maintain Strategy (in that order).
Which strategy is best and quantify your results? (10 pts)