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:

• 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.

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?

A B C D E F G H | J K L M N P Q 1 Assumptions: 2 Annual growth rate of price of steel 6.45% 6.84% (historical) 3 Annual growth rate of operating costs 6.75% 4 Tax rate 35.00% 5 Discount rate 15.50% 6 7 8 Thin Slab Minimill 9 0 1 2 3 10 1986 1987 1988 1989 4 1990 5 1991 6 1992 7 1993 8 1994 9 1995 10 11 12 1996 1997 1998 11 Capacity(million of tons of steel) 0 0 0 12 Shipments (Exhibit 12A) - Hot-rolled sheets (HR) (Exhibit 12A) 0 0 0 0.25 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 - Cold-rolled sheets (CR) (Exhibit 12A) 0 0 0 0.175 0.35 0.35 0.35 0.35 0.35 0.35 0.35 0.35 0.35 15 15 16 Revenue/ton 17 - Hot-rolled sheets (HR) (Exhibit 12B) 306.5 18 - Cold-rolled sheets (CR) (Exhibit 12B) 390.5 19 20 Total revenue (shipment x rev/ton) -Hot-rolled sheets (HR) - Cold-rolled sheets (CR) Operating costs/ton - Hot-rolled sheets (HR) (Exhibit 12B) - Cold-rolled sheets (CR) (Exhibit 12B) Total operating costs (shipment x cost/ton) - Hot-rolled sheets (HR) - Cold-rolled sheets (CR) 225 283 39 45 50 51 51 52 52 53 54 55 56 57 Depreciate over 10 years Income - Hot-rolled sheets (HR) - Cold-rolled sheets (CR) Total income Taxes Add back depreciation Subtract capital expenditures Subtract startup costs Subtract working capital costs Cash flows Internal rate of return (IRR) Discounted cash flows. Sum of discounted cash flows (NPV) Nucor's investment criterion: **25% ROA by year 5? Year 5 CF: Year 5 Assets: 30.00 30.00 58 59 Year 5 ROA: 60 61 62 63 64 65 66 67 CF analysis-thin slab CF analysis - Modernize CF analysis - Unmodernized +