The USEC Inc Project Examination Essay Example | Topics and Well Written Essays - 2750 words

The USEC Inc Project Examination - Essay Example The key value driver of the NPV is the demand for Separate Work Units (SWU). It has been assumed by USEC that there will be 100% demand which will enable the ACP to operate at 100% production capacity. The sensitivity analysis shows that for every 1% decrease in demand, the NPV comes down by 2.74%. It is therefore recommended that Rivanna capital should take a long position in the project. This is because the stock price, after considering the ACP project, is undervalued by a massive 49.53% and Rivanna’s rule is to go long on any stock that is undervalued by 10% or more. 2. MAIN REPORT 2.1 The pursuit of ACP by USEC USEC is pursuing ACP because it will give it an edge technologically and cost-wise over its competitors. The cost efficiencies realised from ACP will make it the lowest cost producer in the uranium enrichment industry. The existing uranium enrichment process of USEC at the Paducah plant uses the gas diffusion process. This process requires intensive electricity pow er for operating a series of enormous industrial compressors. USEC has kept the cost of this electricity constant through a long term electricity contract. However, this contract will expire soon. After the expiry of this contract, the cost of production will rise and this will have a very negative impact on the profit margins of USEC. Consequently, USEC is very keen on pursuing the American Centrifuge project. The technology used in the centrifuge project will cut down the electricity consumption in the enrichment process by a whopping 95%.This would bring down the overall enrichment costs by 50%. The low costs mean higher profit margins for USEC. ACP will also double the scale of USEC and has the potential to dramatically improve the competitive position of USEC. 2.2... USEC is pursuing ACP because it will give it an edge technologically and cost-wise over its competitors. The cost efficiencies realised from ACP will make it the lowest cost producer in the uranium enrichment industry. The existing uranium enrichment process of USEC at the Paducah plant uses the gas diffusion process. This process requires intensive electricity power for operating a series of enormous industrial compressors.