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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...
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…
3) What is USEC's weighted-average cost of capital in July 2006? Are you comfortable with using this discount rate for the ACP?
The Weighted Average Cost of Capital can be calculated using the following formula:
Where e = value of equity in the company, d = current value of the company's debt, v = the total value of debt and equity in the company, c = the cost of equity (determined by dividing the dividends per share by the market price per share of the company's stock,
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