Maximizing the value of crude oil storage and marine terminal project

Abstract

The basic objective in corporate finance is to maximize firm value and as such all decisions made by corporation must be guided towards this objective. This consultancy research aims to develop a model that can be applied in making investment and financing decision of crude oil storage and marine terminal project. We are appointed by Pristine Oil (M) Sdn Bhd as consultant to assist in its capital budgeting exercise and to establish the optimal capital structure. A number of tools have been utilized in order to apply the corporate finance theories in this real life project. Meanwhile, Royal Vopak N.V, a well-established multinational company in the oil storage industry, is selected as benchmark business to facilitate the research. Based on our assumptions of base scenario, cash flow projection and estimation of cost of capital, the firm is suggested to undertake the project given the short payback period, favorable IRR, positive NPV and incremental firm value. Furthermore, three approaches, namely Cost of Capital, Adjusted Present Value and Comparative Analysis, have been performed to achieve the optimal capital structure. By synthesizing the findings, we found firm value is maximized at between 20% to 30% debt. Finally, the sensitivity and scenario analysis provide better ‘what-ifs’ understanding and flexibility to the model.