Using the financial data in the case, what is your estimate of the American Centrifuge Projects NPV and IRR?

HINTS: When building the cash-flows for the project, keep in mind the following information that will help you focus and eliminate some of the likely outcomes based on other assumption. This is important because this can be a quite complicated case!

Remember that your analysis is supposed to consider INCREMENTAL cash flows. If USEC does not take the ACP project, they will continue to use the gas-diffusion technology at Paducah for the enrichment process that they have right now. This means you will have to calculate two sets of total cash flows one for continuing with Paducah, and one for the ACP; then calculate the NPV, IRR of the incremental cash flows (ACP-Paducah). My suggestion is to build Paducah cash flows first (for the first five years of the analysis, the only difference between the two projects should be the large long term investment for the ACP presented in Table 1).

Mind the companys inflation assumption you need to work with nominal cash flows in order to maintain consistency with the discount rate!!! (be careful about which lines increase with inflation).

Consider a marginal tax rate of 40%.

Assume that Selling, General and Administrative (SG&A) expenses are 4% of your gross revenue.

You can safely ignore the net-working capital liquidation value data presented in Exhibit 3 (Mackovjak did not find it relevant for his analysis either).

Uranium inventory do not model the uranium inventory as a separate line, as it will get too complicated. Assume that the NWC assumption (5% of sales) INCLUDES any inventory effects.

Price of Uranium - When recording your costs of goods sold, there are good arguments to be made for keeping track of the uranium either at its Book Value ($20/lb), or at the market value ($43/lb). Because the case states that USEC did sell its inventory on the open market, use the market value of uranium in your Discounted Cash Flows analysis.

Income Statement as of December 31 (in millions of dollars) Balance Sheet as of December 31 (in millions of dollars) USEC INC. Net Working-Capital Liquidation Value (in millions of dollars) "Book value of uranium computed as 29 million equivalent pounds $20/lb.=$580 million. Market value of uranium computed as 29 million equivalent pounds $43/lb. =$1,247 million. USEC INC. Capital-Market Conditions (July 21, 2006) Income Statement as of December 31 (in millions of dollars) Balance Sheet as of December 31 (in millions of dollars) USEC INC. Net Working-Capital Liquidation Value (in millions of dollars) "Book value of uranium computed as 29 million equivalent pounds $20/lb.=$580 million. Market value of uranium computed as 29 million equivalent pounds $43/lb. =$1,247 million. USEC INC. Capital-Market Conditions (July 21, 2006)