1. Cash Flow Analysis

Use the"CF analysis-thin slab"Excel spreadsheet provided as a template to calculate the cash flows Nucor could expect if it 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:

• 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 beaddedto the asset base before calculating ROA.

1. By Nucor's own investment criterion (i.e., 25% return on assets at five years), what will CEO Ken Iverson think about this investment?
2. 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?

Exhibit 12B
					Modernized		Unmodernized
		Thin-slab Minimill		Integrated Mill		Integrated Mill
		HR	CR		HR	CR		HR	CR
	Operating assumptions
	Labor / hour	$20.00	$20.00		$23.50	$23.50		$23.50	$23.50
	Scrap / ton	$90.00	$90.00		$80.00	$80.00		$80.00	$80.00
	Man hours / ton	1.75	2.65		2.85	4.50		3.90	5.85
	Capacity Utilization	90.00%	90.00%		90.00%	90.00%		75.00%	75.00%
	Operation costs / ton
	Labor	$35.00	$53.00		$67.00	$105.50		$91.50	$141.00
	Ore	0	0		51	54		52	56
	Coal	0	0		35	37.5		38	40.5
	Energy	24	38		9	23		9.5	25
	Scrap	100	102		13.5	9.5		19.5	15.5
	Materials and supplies	56	72.5		71	93		72.5	95.5
	Maintenance & repairs	10	17.5		15	26.5		17	29.5
	Total costs / ton	$225.00	$283.00		$261.50	$349.00		$300.00	$403.00
	Revenue / ton	$306.50	$390.50		$326.00	$454.50		$325.00	$453.00

\fModernized integrated millUnmodemized integrated m