1. 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) 2005 $1,559.3 2004 $1,417.2 2003 $1,436.7 2002 $1,380.2 Total revenue Cost of goods sold* Selling, general and administrative Operating profit 1,430.6 61.9 66.8 1,279.9 64.1 73.2 1,319.1 69.4 48.2 1,305.6 54.1 20.5 Interest expense Other, net Net income before taxes (40.0) 10.5 37.3 (40.5) 3.9 36.6 (38.4) 5.4 15.2 (36.5) 7.0 (9.0) Provision for income taxes Net income after taxes 15.0 22.3 13.1 23.5 6.2 9.0 (5.0) (4.0) Net income per share** Dividends per share $0.26 $0.55 $0.28 $0.55 $0.11 $0.55 ($0.05) $0.55 $23.9 * Includes depreciation expense as: ** Using weighted average shares outstanding as: $35.0 86.1 $31.8 84.1 $29.3 82.2 81.4 USEC INC. Balance Sheet as of December 31 (in millions of dollars) 2005 2004 2003 2002 Cash and short-term investments Accounts receivabletrade, net Inventories Deferred income tax and other Total current assets 276.9 256.7 961.6 120.5 1,615.7 174.8 238.5 992.2 83.4 1,488.9 249.1 254.5 860.9 100.3 1,464.8 171.1 225.4 839.6 51.6 1,287.7 185.1 190.9 Net property/plant/equipment Goodwill, net Other long-term assets Total assets 171.2 11.1 282.8 2,080.8 178.0 4.3 332.2 2,003.4 484.9 2,134.8 570.9 2,049.5 189.4 68.3 Accounts payable Customer advances Other payables Total current liabilities 217.4 99.0 111.6 428.0 202.3 73.3 89.7 365.3 197.5 455.2 218.5 45.0 106.6 370.1 Long-term debt Pension benefitsunderfunded Deferred income tax and other Total liabilities 475.0 153.9 116.3 1,173.2 475.0 145.2 99.2 1,084.7 500.0 138.1 117.9 1,211.2 500.0 137.8 127.2 1,135.1 Common stock, total Additional paid-in-capital Treasury stock Retained earnings (accumulated deficit) Total equity 10.0 970.6 (99.5) 26.5 907.6 10.0 963.9 (109.2) 54.0 918.7 10.0 1,009.0 (127.7) 32.3 923.6 10.0 1,054.8 (133.5) (16.9) 914.4 Total liabilities and shareholders' equity 2,080.8 2,003.4 2,134.8 2,049.5 USEC INC. Net Working-Capital Liquidation Value (in millions of dollars) Cash and short-term investments Accounts receivable-trade, net Megatons to megawatts inventory Other inventory (SWU, uranium, etc.) Total current assets Book Market 276.9 276.9 256.7 256.7 580.0 1,247.0 381.6 381.6 $1,495.2 $2,162.2 Accounts payable Customer advances Other payables Total current liabilities 217.4 99.0 111.6 $428.0 217.4 99.0 111.6 $428.0 Net working capital Less debt Less pension underfunding Liquidation value $1,067.2 ($475.0) ($153.9) $438.3 $1,734.2 ($437.8) ($153.9) $1,142.5 Liquidation value/share $5.1 $13.1 Premium over current stock price ($10.8) -53% 22% *Book value of uranium computed as 29 million equivalent pounds * $20/1b. = $580 million. Market value of uranium computed as 29 million equivalent pounds * $43/lb. = $1,247 million. USEC INC. Capital-Market Conditions (July 21, 2006) U.S. Treasury Bonds Rates Maturity 6-month 3-year 5-year 10-year 30-year Yield 5.02 5.02 4.98 5.04 5.09 Last Week 5.03 5.05 5.02 5.06 5.11 Last Month 5.20 5.17 5.13 5.15 5.19 USEC Public Debt Issue 7.75 % due 2015 Amount ($ millions) 475 S&P Rating B- YTM 9.04% USEC Beta Five years of monthly data 1.30 Stock Price Performance Recent share price $10.80 Income Statement as of December 31 (in millions of dollars) 2005 $1,559.3 2004 $1,417.2 2003 $1,436.7 2002 $1,380.2 Total revenue Cost of goods sold* Selling, general and administrative Operating profit 1,430.6 61.9 66.8 1,279.9 64.1 73.2 1,319.1 69.4 48.2 1,305.6 54.1 20.5 Interest expense Other, net Net income before taxes (40.0) 10.5 37.3 (40.5) 3.9 36.6 (38.4) 5.4 15.2 (36.5) 7.0 (9.0) Provision for income taxes Net income after taxes 15.0 22.3 13.1 23.5 6.2 9.0 (5.0) (4.0) Net income per share** Dividends per share $0.26 $0.55 $0.28 $0.55 $0.11 $0.55 ($0.05) $0.55 $23.9 * Includes depreciation expense as: ** Using weighted average shares outstanding as: $35.0 86.1 $31.8 84.1 $29.3 82.2 81.4 USEC INC. Balance Sheet as of December 31 (in millions of dollars) 2005 2004 2003 2002 Cash and short-term investments Accounts receivabletrade, net Inventories Deferred income tax and other Total current assets 276.9 256.7 961.6 120.5 1,615.7 174.8 238.5 992.2 83.4 1,488.9 249.1 254.5 860.9 100.3 1,464.8 171.1 225.4 839.6 51.6 1,287.7 185.1 190.9 Net property/plant/equipment Goodwill, net Other long-term assets Total assets 171.2 11.1 282.8 2,080.8 178.0 4.3 332.2 2,003.4 484.9 2,134.8 570.9 2,049.5 189.4 68.3 Accounts payable Customer advances Other payables Total current liabilities 217.4 99.0 111.6 428.0 202.3 73.3 89.7 365.3 197.5 455.2 218.5 45.0 106.6 370.1 Long-term debt Pension benefitsunderfunded Deferred income tax and other Total liabilities 475.0 153.9 116.3 1,173.2 475.0 145.2 99.2 1,084.7 500.0 138.1 117.9 1,211.2 500.0 137.8 127.2 1,135.1 Common stock, total Additional paid-in-capital Treasury stock Retained earnings (accumulated deficit) Total equity 10.0 970.6 (99.5) 26.5 907.6 10.0 963.9 (109.2) 54.0 918.7 10.0 1,009.0 (127.7) 32.3 923.6 10.0 1,054.8 (133.5) (16.9) 914.4 Total liabilities and shareholders' equity 2,080.8 2,003.4 2,134.8 2,049.5 USEC INC. Net Working-Capital Liquidation Value (in millions of dollars) Cash and short-term investments Accounts receivable-trade, net Megatons to megawatts inventory Other inventory (SWU, uranium, etc.) Total current assets Book Market 276.9 276.9 256.7 256.7 580.0 1,247.0 381.6 381.6 $1,495.2 $2,162.2 Accounts payable Customer advances Other payables Total current liabilities 217.4 99.0 111.6 $428.0 217.4 99.0 111.6 $428.0 Net working capital Less debt Less pension underfunding Liquidation value $1,067.2 ($475.0) ($153.9) $438.3 $1,734.2 ($437.8) ($153.9) $1,142.5 Liquidation value/share $5.1 $13.1 Premium over current stock price ($10.8) -53% 22% *Book value of uranium computed as 29 million equivalent pounds * $20/1b. = $580 million. Market value of uranium computed as 29 million equivalent pounds * $43/lb. = $1,247 million. USEC INC. Capital-Market Conditions (July 21, 2006) U.S. Treasury Bonds Rates Maturity 6-month 3-year 5-year 10-year 30-year Yield 5.02 5.02 4.98 5.04 5.09 Last Week 5.03 5.05 5.02 5.06 5.11 Last Month 5.20 5.17 5.13 5.15 5.19 USEC Public Debt Issue 7.75 % due 2015 Amount ($ millions) 475 S&P Rating B- YTM 9.04% USEC Beta Five years of monthly data 1.30 Stock Price Performance Recent share price $10.80