Finance Case Essay

1196 Words Apr 22nd, 2011 5 Pages
ANALYSIS OF USEC Inc.,

Prepared For:
Dr. Doina Chichernea
BUAD 6200
SPRING 2011
The University of Toledo

APRIL 21, 2011
Executive Summary

USEC is the world’s leading supplier of enriched Uranium to nuclear power plants. Due to the expiration of long term energy cost savings contracts, USEC is examining the possibility of taking on a new project called the American Centrifuge Project. This project will utilize a different process for Uranium enrichment, which is the core business process of USEC. The new technology process uses much less energy, which will reduce manufacturing costs and keep USEC on the leading edge of technology in the enrichment market space. As with any major energy industry project, the ACP project
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This is driving the need to come up with an alternative solution to the current process. The ACP technology is being looked at because it could give a competitive advantage to USEC against its competitors. ACP will lower the production costs and improve USEC’s technology position in the market. If the company takes on the ACP project, USEC will reach 6.5 million units in production by 2013. A minimal level of maintenance would be required due to the improved technology and better facilities. ACP would also double the size of USEC as a whole.

Cash Flow Calculations
We are providing below the assumptions and other calculations we used while computing the WACC and the cash flows. * Net working capital of 5% of sales will be used for both Paducah and ACP project * Inflation is assumed to be 3% * Flotation costs are ignored for cost of equity. * We assume a risk-free rate of 5.09%. This number comes from the current yield of the 30 year T-bond as shown in Exhibit 5. * 50% reduction in enrichment cost start from year 2011 (for ACP project). Without the 50% reduction, the enrichment cost in 2011 would have been $50.15. We are going to start at 50.15/2=$25.07 (50%) from year 2011 as enrichment cost and from there it will again increase at the rate of inflation which is 3%. In 2011, the total capacity will be 3.5M (2.5M from ACP and 1M from Paducah). While calculating the enrichment cost for the year 2011, we used the

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