timken

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USEC Capital Budgeting Case Questions In one paragraph (max 5 sentences), describe the general situation faced by USEC: USEC is the lead supplier of enriched uranium, which is used to fuel nuclear reactors. Due to an expiring contract with a power supplier, the production of Uranium fuel became very expensive at the current Paducah plant. USEC created a new plant called APC in an attempt to advance technology and become the low cost producers in the Uranium industry. Mackovjak is a financial analyst tasked with the evaluation of USEC. In order to properly value USEC, Mackovjak needs to evaluate APC and their contributions to USEC. 2) What is the Weighted Average Cost of Capital for USEC in July 2006? (Assume the expected return on…show more content…
As to your spreadsheet: For Paducah, the CFs shown would be irrelevant, as “with ACP, Paducah operates in 2006-2010, and without ACP, Paducah operates in 2006-2010”, so Paducah CFs irrelevant to ACP valuation in 2006-2010. But necessary to estimate from 2006-2010, so that when lost 2011-2025, Paducah CFs are already escalated and easily estimable. In that regard, all CFs to the NPV calc are too high as you have included irrelevant 2006-2010 CFs for Paducah, but more importantly, have ignored all Paducah CFs lost from 2011-2025 as suggested by the case comments given in class the prior day to case discussion. Further, your Paducah OCF format of (S-C)(1-T)+TD should only contain cash costs in “C” and your spreadsheet shows that “C” contains Capital Expenditures. Capital Expenditures is ALWAYS outside of OCF, with (S-C)(1-T)+TD – ChgNWC – Yearly CapEx., which you do, thus effectively double deducting for CapEx. You did not return NWC at the end of the project. For ACP, Uranium Costs are basically ZERO in your valuation after 2012. This error SEVERELY underestimates costs, and overestimates FCF and thus NPV. Further, in your “double 2011” method, a Uranium cost of $21? Where is this from? For Depreciation in ACP, you are using Depreciation for Paducah (Old), not the Capitalized Plant Bldg costs. Further, your analysis does not seem to include the $1.7b cost anywhere, other than in the text of this document where you apparently take a t=0 PVCF and

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