Usec Why Is Usec Pursuing the Acp?

USEC

Why is USEC pursuing the ACP?

The ACP will place USEC firmly at the forefront of its current industry and set of operations, greatly increasing the revenue potential and overall value of the company. Despite the large initial costs associated with the project, the cost savings will be even more substantial -- a fifty percent reduction in the per-unit cost for SWUs once the ACP is being used for uranium enrichment rather than the current plant and processes. Simply put, the ACP is a way for UNSEC to increase its profitability and viability in the industry for many years to come, through a focus on innovation and a willingness to accept the risks of this large project.

What is the net present value (NPV) of the ACP currently implied by the stock market?

The Net Present Value of the ACP can be measured as the difference between the expected expenditures and projected returns of the project. The present value of the projected expenses for each year of the ACP's construction and development can be determined by the equation where x = yearly expense, I = average annual inflation rate, n = number of years out, and PV = present value. Inflation is given an expected annual rate of 3% in the case study, and the expense value for each year ("x" in the equation) is also provided. This table shows the present value for each year's expenditure, based on the information in the case study and the above equation:

2006

2007

2008

2009

2010

Total present values for future years' expenditures is $1,495.19.

Projected returns are based on the capacity of the ACP in turning out SWUs as given in the case study, at a price of $127 per SWU adjusted upwards with inflation (again, assuming an average inflation rate of 3% as given in the case study). Multiplying the inflation-adjusted price of each SWU by the operating capacity of the ACP gives the future year revenue level; expenses of $21 per SWU (current production costs are stated to be $42 per SWU, and the case study mentions an expectation that these costs will be reduced by fifty percent overall by switching to the ACP for production) must be subtracted to give actual operating income levels. Multiplying operating income by appropriate factors found on present value tables (based on number of years out and a 3% inflation rate) gives the present value of future operating income. This table shows the operating capacity of the ACP for the first five years of its operation, expected inflation adjusted revenue from capacity production, inflation adjusted expenses, future year operating income, and the present value of this operating income:

Year

Capacity (millions)

Revenue

Expense