Usec Case Study
ACP project analysis
Nawaf Aldeghaishem
Hamza Sarraj
Usman Zaffar
Mohammed Ashour
Table of Contents
Assumptions
Inventory, raw material and manunfaturing costs
Depreciation and salvage value
DOE Royalties
WACC CALCULATIONS
Wighted average cost of capital
Taxation
Net Present Value
Scenario analysis
Answers
Colclusion
Assumptions
The study is performed assuming the present to be the year 2006. The study will extend over the next 20 periods (year 2026).
Inventory, raw material and manunfaturing costs
Given that the company owned 29,000,000 pounds of raw material in the second quarter of 2006, it was assumed that this amount was present from the beginning of the year. Because of the lack of storage cost information, no storage costs were incurred or taken into the analysis. It was assumed that 5,000,000 pounds of uranium had to be bought annually until year 2012 according to the Megatons to Megawatts agreement, which expires in 2012. Furthermore, it was assumed that no raw material was purchased as long as sufficient stock existed in inventory. No safety stock level was taken into account and the amount purchased every year was assumed to be exactly equal to the amount of production of that year.
The cost of purchasing raw material was held at $20 according to the agreement with the Russian government regardless to the market’s price until 2012. The price after that was subject to the market value with respect to the forecasted inflation rate.
An assumption had to be made regarding the method of production. It was assumed that 1 pound of raw uranium can produce 1 seperative working unit (SWU) at each facility’s individual cost of production per pound. The production cost per pound was increased yearly according to the forecasted rate of inflation. Furthermore, the production cost per unit at the ACP plant was calculated as half of the cost per unit of the Paducah plant including the inflation.
Depreciation and salvage value
Depreciation