(2) Cash Flow Analysis (15 points) Use the "CF analysis-thin slab" Excel spreadsheet provid a template to calculate the cash flows Nucor could expec adopted SMS's CSP process. Most of the critical data is already in the spreadsheet, drawn primarily from Exhibits 12A and 12B. Please adhere to the following assumptions and conventions: Don't change any of the figures I have input. Use 6.45% as the growth rate for the price of steel, not the historical 6.84% Assume the entire $280 million construction cost is incurred in 1986 Depreciate the factory equally over 10 years (1989-1998). The spreadsheet says 12 years, which includes the two years the factory is under construction (1987, 1988). I want you to start in 1989, when the plant comes on line, and assume it loses all value over the next 10 years. Note that in applying its investment criterion, Nucor ignored start-up expenses and working capital costs. Thus, in figuring the assets of the minimill in 1989 or later, those expenses need to be added to the asset base before calculating ROA. a. By Nucor's own investment criterion (i.e., 25% return on assets at five years), what will CEO Ken Iverson think about this investment? b. As a consultant using more traditional investment criteria (such as NPV or IRR), what do you think about this investment from this part of the analysis? Submit both Word file of answers for each questions and Excel file of your calculations. YouTube link: https://youtu.be/xFKUNIHAXBE Operating assumptions CF analysis-thin slab CF analysis - Modernize CF analysis - Unmodernized Assumptions: Annual growth rate of price of steel Anul growth rate of operating costs 6.84% historical 6.45% 6.79% 35.00% Discount rate Thin Slab Minimill O 1986 0 1 1987 . 2 1988 3 1989 4 1990 s 1991 6 1992 7 1993 . 1995 1994 10 1996 11 1997 12 1998 Capacity million of tons of steel) Shipments Exhibit 12A) Hot-rolled sheets (HR) (Exhibit 12A) . Cold-rolled sheets (CR) (Exhibit 12A) 05 0.5 05 0 0 025 0.175 05 035 05 0.35 05 0.35 05 03 05 0.35 05 0.35 0 Revenue/ton Hot rolled sheets (HR) (Exhibit 128) . Cold-rolled sheets (CR) (Exhibit 128) 3065 3905 Total revenue shipment revlon Hot-rolled sheets (HR) . Cold-rolled sheets (CR) Operating costs/ton Hot-rolled sheets CHR) Exhibit 128) . Cold-rolled sheets (CR) Exhibit 128) 225 283 Total operating costs shipment costiton Hot-rolled sheets (HR) . Cold-rolled sheets (CR) Depreciate over 10 years Income Horrolled sheets (PR) Cold-rolled sheets (CR) Total income Taxes Add back depreciation Subtract capital expenditures Subtract startup costs Subtract working capital costs 3000 000 Cash flows Internal rate of return (IRR) Discounted cash flows Sum of discounted cash flow (NPV) Nucer's investment criterion 25% ROA by year 57 Years CF Year Assets Year SROA (2) Cash Flow Analysis (15 points) Use the "CF analysis-thin slab" Excel spreadsheet provid a template to calculate the cash flows Nucor could expec adopted SMS's CSP process. Most of the critical data is already in the spreadsheet, drawn primarily from Exhibits 12A and 12B. Please adhere to the following assumptions and conventions: Don't change any of the figures I have input. Use 6.45% as the growth rate for the price of steel, not the historical 6.84% Assume the entire $280 million construction cost is incurred in 1986 Depreciate the factory equally over 10 years (1989-1998). The spreadsheet says 12 years, which includes the two years the factory is under construction (1987, 1988). I want you to start in 1989, when the plant comes on line, and assume it loses all value over the next 10 years. Note that in applying its investment criterion, Nucor ignored start-up expenses and working capital costs. Thus, in figuring the assets of the minimill in 1989 or later, those expenses need to be added to the asset base before calculating ROA. a. By Nucor's own investment criterion (i.e., 25% return on assets at five years), what will CEO Ken Iverson think about this investment? b. As a consultant using more traditional investment criteria (such as NPV or IRR), what do you think about this investment from this part of the analysis? Submit both Word file of answers for each questions and Excel file of your calculations. YouTube link: https://youtu.be/xFKUNIHAXBE Operating assumptions CF analysis-thin slab CF analysis - Modernize CF analysis - Unmodernized Assumptions: Annual growth rate of price of steel Anul growth rate of operating costs 6.84% historical 6.45% 6.79% 35.00% Discount rate Thin Slab Minimill O 1986 0 1 1987 . 2 1988 3 1989 4 1990 s 1991 6 1992 7 1993 . 1995 1994 10 1996 11 1997 12 1998 Capacity million of tons of steel) Shipments Exhibit 12A) Hot-rolled sheets (HR) (Exhibit 12A) . Cold-rolled sheets (CR) (Exhibit 12A) 05 0.5 05 0 0 025 0.175 05 035 05 0.35 05 0.35 05 03 05 0.35 05 0.35 0 Revenue/ton Hot rolled sheets (HR) (Exhibit 128) . Cold-rolled sheets (CR) (Exhibit 128) 3065 3905 Total revenue shipment revlon Hot-rolled sheets (HR) . Cold-rolled sheets (CR) Operating costs/ton Hot-rolled sheets CHR) Exhibit 128) . Cold-rolled sheets (CR) Exhibit 128) 225 283 Total operating costs shipment costiton Hot-rolled sheets (HR) . Cold-rolled sheets (CR) Depreciate over 10 years Income Horrolled sheets (PR) Cold-rolled sheets (CR) Total income Taxes Add back depreciation Subtract capital expenditures Subtract startup costs Subtract working capital costs 3000 000 Cash flows Internal rate of return (IRR) Discounted cash flows Sum of discounted cash flow (NPV) Nucer's investment criterion 25% ROA by year 57 Years CF Year Assets Year SROA