Finance Case
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 comes with a huge price tag of around $1.7 billion. Investment of this size cannot be made without due analysis. We have taken in to account all the details given while calculating key statistics for this project. A thorough analysis is in the best interests of USEC as the project will provide them with the freedom to implement new technologies in the uranium enrichment process in their own plant. Without this, USEC is constrained to lease the government owned plants which usually comes with its own restrictions.
We will be calculating the individual cash flows of its existing Paducah operations and the ACP project it is planning to invest in. Our decision will be based on the incremental NPV and IRR. This report will walk us through all the important aspects of our analysis and ultimately to our final decision of whether accepting or rejecting the project.
Background
USEC is pursuing ACP for several reasons, most of which can be attributed to an increasing gain by its competitors in the market space. USEC’s long term contract for a lower cost power supply for their current process had expired. This left USEC with much higher costs for electricity, which is heavily used in the current process for Uranium enrichment,
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 comes with a huge price tag of around $1.7 billion. Investment of this size cannot be made without due analysis. We have taken in to account all the details given while calculating key statistics for this project. A thorough analysis is in the best interests of USEC as the project will provide them with the freedom to implement new technologies in the uranium enrichment process in their own plant. Without this, USEC is constrained to lease the government owned plants which usually comes with its own restrictions.
We will be calculating the individual cash flows of its existing Paducah operations and the ACP project it is planning to invest in. Our decision will be based on the incremental NPV and IRR. This report will walk us through all the important aspects of our analysis and ultimately to our final decision of whether accepting or rejecting the project.
Background
USEC is pursuing ACP for several reasons, most of which can be attributed to an increasing gain by its competitors in the market space. USEC’s long term contract for a lower cost power supply for their current process had expired. This left USEC with much higher costs for electricity, which is heavily used in the current process for Uranium enrichment,