Nucor Case
DATE: March 13, 2014
SUBJECT: Should Nucor Adopt the CSP Process?
Cash Flow Analysis
Cash flow analysis on Exhibit 1 represents net cash flow calculation using the base assumption. According to this calculation, Nucor would have net present value of $(11.99) million which is a negative value. This negative value on NPV indicates potential unprofitable consequences after implementing SMS’s compact strip production (CSP); therefore, Nucor should not invest in this new technology.
Scenario Analysis
Instead of using the given assumptions, I have set two alternatives for assumption to see how the results are different. While everything being constant, the first scenario (Exhibit 2) assumes the growth rate of price of steel be 7.34% rather than 6.34%. I assumed that the demand of steel may increase if technology keeps improving and the number of companies selling steel products keeps increasing and the higher demand would eventually lead to the higher price. For the similar reason, the second scenario (Exhibit 3) assumes the growth rate of operating costs to be 5.34% instead of 6.34%. Expecting that the technology and learning experience of companies will improve in near future, the operating costs would also decrease. If growth rate of steel price is increased, the NPV would be $57.53 which is a positive value. If growth rate of operating costs is decreased, the NPV would be a positive value of $35.42. In both cases, I would recommend Nucor to adopt CSP because these results show that new technology would bring profits to Nucor.
Strategic Analysis
According o CFO Siege, Nucor used only a few decision criteria to review and assess the viability of this investment. The first question they addressed is “Will it perform technically as advertised?”. The second criterion was to see if Nucor can get the return on assets (ROA) that the vendor has advertised. The last one was to know if Nucor’s previous capital expenditure constrains its
SUBJECT: Should Nucor Adopt the CSP Process?
Cash Flow Analysis
Cash flow analysis on Exhibit 1 represents net cash flow calculation using the base assumption. According to this calculation, Nucor would have net present value of $(11.99) million which is a negative value. This negative value on NPV indicates potential unprofitable consequences after implementing SMS’s compact strip production (CSP); therefore, Nucor should not invest in this new technology.
Scenario Analysis
Instead of using the given assumptions, I have set two alternatives for assumption to see how the results are different. While everything being constant, the first scenario (Exhibit 2) assumes the growth rate of price of steel be 7.34% rather than 6.34%. I assumed that the demand of steel may increase if technology keeps improving and the number of companies selling steel products keeps increasing and the higher demand would eventually lead to the higher price. For the similar reason, the second scenario (Exhibit 3) assumes the growth rate of operating costs to be 5.34% instead of 6.34%. Expecting that the technology and learning experience of companies will improve in near future, the operating costs would also decrease. If growth rate of steel price is increased, the NPV would be $57.53 which is a positive value. If growth rate of operating costs is decreased, the NPV would be a positive value of $35.42. In both cases, I would recommend Nucor to adopt CSP because these results show that new technology would bring profits to Nucor.
Strategic Analysis
According o CFO Siege, Nucor used only a few decision criteria to review and assess the viability of this investment. The first question they addressed is “Will it perform technically as advertised?”. The second criterion was to see if Nucor can get the return on assets (ROA) that the vendor has advertised. The last one was to know if Nucor’s previous capital expenditure constrains its