1 Assumptions: B 2 Annual growth rate of price of steel 3 Annual growth rate of...

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1 Assumptions: B 2 Annual growth rate of price of steel 3 Annual growth rate of operating costs 4 Tax rate 5 Discount rate 6 7 8 Thin Slab Minimill C D E F G H 4.37% 6.84% (historical) 4.10% 35.00% 16.00% - K L M N 9 10 11 Capacity(million of tons of steel) 12 Shipments (12A) 13 14- Cold-rolled sheets (CR) (12A) 15 16 Revenue / ton 0 1986 1 2 3 5 6 7 8 1987 1988 1989 1990 1991 1992 1993 1994 9 1995 10 1996 11 1997 12 1998 ic 0 0 0 Hot-rolled sheets (HR) (12A) 0 0 oo 0 0 0.25 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0 0 0.175 0.35 0.35 0.35 0.35 0.35 0.35 0.35 0.35 0.35 17 - Hot-rolled sheets (HR) (12B) 18- Cold-rolled sheets (CR) (12B) 19 20 Total revenue (shipment*rev/ton) 21 Hot-rolled sheets (HR) 22- Cold-rolled sheets (CR) 23 24 Operating costs/ton 306.5 390.5 25- Hot-rolled sheets (HR) (12B) 225 26 Cold-rolled sheets (CR) (12B) 283 27 28 Total operating costs(shipment*cost/ton) 29 Hot-rolled sheets (HR) 30- Cold-rolled sheets (CR) 31 32 33 Depreciate over 10 years 34 35 Income 36- Hot-rolled sheets (HR) 37- Cold-rolled sheets (CR) 38 39 Total income 40 41 Taxes 42 0.00 Nucor CashFlow_CSP Competitors_Cash Flow_Modernize Competitors_CashFI_UNmodernize P Q R S T B 22- 23 Cold-rolled sheets (CR) 24 Operating costs/ton 25 Hot-rolled sheets (HR) (12B) 0 225 283 0.00 26 Cold-rolled sheets (CR) (12B) 27 28 Total operating costs(shipment*cost/ton) 29- 30- 31 32 Hot-rolled sheets (HR) Cold-rolled sheets (CR) 33 Depreciate over 10 years 34 35 Income 36 Hot-rolled sheets (HR) 37- Cold-rolled sheets (CR) 38 39 Total income 40 41 Taxes 42 43 Add back depreciation D E F G H - K L M N P Q R S T 0.00 44 Subtract capital expenditures 220.00 60.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 45 Subtract startup costs 0.00 0.00 0.00 30.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 46 Subtract working capital costs 47 0.00 0.00 0.00 30.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 48 Cash flow 49 Internal rate of return (IRR) 50 Discounted cash flow 51 52 Sum of discounted cash flow 53 54 Investment criterion: 25% ROA by year 5? Year 5 CF: 55 Year 5 Assets: 56 57 Year 5 ROA: 58 59 60 61 62 63 64 Nucor CashFlow_CSP Competitors_Cash Flow_Modernize Competitors_CashFI_UNmodernize FL 6.84% (historical) A B D E Assumptions: Annual growth rate of price of steel 4.37% Annual growth rate of operating costs 4.10% Tax rate 35.00% Discount rate 16.00% Modernized integrated mill 11 Capacity(million of tons of steel) Shipments (12A) - Hot-rolled sheets (HR) (12A) 1 - 234567890-2315672~~~333OMOTIZS G H J K L M N P Q 20 R S 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 20 10 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4 oo 0 0 1.35 23 2.1 2.1 2.1 2.1 2.1 2.1 1.35 1.35 1.35 1.35 1.35 1.35 1335 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2 1.35 1.35 1.35 1.35 1.35 1.35 1.35 1.35 1. - Cold-rolled sheets (CR) (12A) Revenue/ton Hot-rolled sheets (HR) (12B) 326 - Cold-rolled sheets (CR) (12B) 454.5 Total revenue (shipment*rev/ton) - Hot-rolled sheets (HR) - Cold-rolled sheets (CR) Operating costs/ton - Hot-rolled sheets (HR) (12B) 261.5 349 Cold-rolled sheets (CR) (12B) Total operating costs(shipment*cost/ton) - Hot-rolled sheets (HR) Cold-rolled sheets (CR) Depreciate over 25 years 0 Income Hot-rolled sheets (HR) Cold-rolled sheets (CR) Total income Taxes Nucor_CashFlow_CSP Competitors_Cash Flow_Modernize Competitors_CashFI_UNmodernize AutoSave Off Nucor_Template (3) - Excel Search File Home Insert Draw Page Layout Formulas Data Review View Help Cut Arial Copy Paste 10 A A ab Wrap Text General BIU A == Merge & Center $ % 9500-00 Format Painter N Font Alignment K] Share AutoSum -- Fill Conditional Format as Formatting Table Cell Styles Insert Delete Format Clear Filter Sort & Find & Select Ideas Styles Cells Editing Ideas 0 Comments Number Clipboard D46 A B C D E F G H J K L M N P Q R S 1234567 Assumptions: Annual growth rate of price of steel 4.37% 6.84% (historical) Annual growth rate of operating costs 4.10% Tax rate 35.00% Discount rate 16.00% 0 1 1986 1987 2 1988 3 4 5 6 7 8 9 10 11 12 13 14 15 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 20 0 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4 0 1.68 1.68 1.68 1.68 1.68 1.68 1.68 1.68 1.68 1.68 1.68 1.68 1.68 1.68 1.68 1. 0 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1. 19 81234567822222222222033333333 29 Unmodernized integrated mill Capacity(million of tons of steel) Shipments (12A) - Hot-rolled sheets (HR) Cold-rolled sheets (CR) Revenue / ton - Hot-rolled sheets (HR) (12B) Cold-rolled sheets (CR) (12B) Total revenue (shipment*rev/ton) - Hot-rolled sheets (HR) Cold-rolled sheets (CR) Operating costs/ton - Hot-rolled sheets (HR) (12B) Cold-rolled sheets (CR) (12B) Total operating costs(shipment*cost/ton) - Hot-rolled sheets (HR) Cold-rolled sheets (CR) 325 453 300 403 Depreciate over 25 years (no expenditure to dep.) Income Hot-rolled sheets (HR) - Cold-rolled sheets (CR) Total income 39 40 41 Taxes 42 Ready 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Nucor_CashFlow_CSP Competitors_Cash Flow_Modernize Competitors_CashFI UNmodernize m + 100% A B 1 Exhibit 12B 0 D E F G H | J K L M N Modernized Integrated Mill Unmodernized Integrated Mill CR HR CR Thin-slab Minimill HR CR HR 7 Labor/ hour $20.00 $20.00 $23.50 $23.50 Scrap/ton $90.00 $90.00 $80.00 9 Man hours ton 1.75 10 Capacity Utilization 90.00% 2.65 90.00% 2.85 90.00% $80.00 4.50 90.00% $23.50 $23.50 $80.00 $80.00 3.90 75.00% 5.85 75.00% 2 1345698 Operating assumptions Operation costs/ton Labor $35.00 $53.00 Ore 0 0 $67.00 51 $105.50 54 $91.50 52 $141.00 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 Revenue / ton $306.50 $283.00 $390.50 $261.50 $349.00 $326.00 $454.50 $300.00 $403.00 $325.00 $453.00 29 44 1234567622222222222033333338RGILET Operating assumptions Nucor_CashFlow_CSP Competitors_Cash Flow_Modernize P Q R S T U Competitors_CashFI_UNmodernize > Paste LE PQ AA Aa A AA Font Styles Editing Dictate AT Styles Voice Clipboard Paragraph (Please Begin AFTER reading the case) As much as you can, I want you to work as a team on the Excel cash flow segments (thin slab, modernize, and unmodernized spreadsheets) of the analysis. You are being asked to apply three complementary types of analysis to the Nucor case: cash flow analysis (a template is provided), scenario analysis (i.e., changes within the model), and strategic analysis (i.e., considerations outside the model, such as competitor behavior). Your deliverable should be a memo of up to two single-spaced pages (plus attachments, including the Excel sheet you used for the analysis). This memo should have four sections: one for each type of analysis and one with your final recommendation explaining your judgment of what action the firm should take in light of these three analyses. Be sure to use subheadings, underlining, boldface or similar formatting to communicate your analysis and recommendations clearly and efficiently. In this assignment, your team will advise Ken Iverson, Nucor CEO, on whether to adopt SMS's CSP process. In your memo to him, please address the following issues. 1. Cash Flow Analysis (20 points) a. By its own investment criterion (i.e., 25% return on assets at five years), should Nucor undertake this investment? This calculation is what CEO Ken Iverson is most interested in at this time. b. What would more traditional investment criteria (such as NPV or IRR) suggest about this investment? Hints: 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, including the 4.37% growth rate in steel. Assume $220 million of the construction cost is incurred in 1986, the rest in '87. 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. Please note that Nucor ignored start-up expenses and working capital costs for its factory and depreciation. Thus, in figuring the assets of the minimill in Year 5, those expenses need to be added to the asset base before calculating ROA. 2. Scenario analysis (20 points) Related Documents details, attachments and requirements so tutors can provide a complete answer. Cash flow analysis Minimum 10 characters are required. Add to Library Search for a subject. More Report Get answer Answers in as fast as 15 minutes By continuing, you agree to our Privacy Policy, Terms of Use, and Honor Code. Company Get Course Hero Thin-slab Modernized Unmodernized Integrated mill Integrated mill HR CR HR CR HR CR Break-even 0.230 0.176 1.229 0.805 1.386 0.860 point (million tons) NPV IRR ROA at Year 5 -23.05 -134.12 542.19 13.35% 14% N/A 32.04% 16.42% N/A (Refer to appendix: table 1 to table 4) According to the cash flow analysis above, we think Nucor should choose the Thin-slab project. The reasons are as follows: Firstly, the net present value of thin-slab is higher than modernized project. Furthermore, the thin-slab project achieves a ROA of 32.04% the second year after set-up, which is more than 25% threshold. However, the modernized project only achieves a ROA of 16.42% at that year. In addition, the break-even point of thin-slab is much lower than that of modernized project. If Nucor initiates the thin-slab project, it can achieve more flexibility in operating. (h) Scenario analucis Careers Help Legal Connect with Us 1 Assumptions: B 2 Annual growth rate of price of steel 3 Annual growth rate of operating costs 4 Tax rate 5 Discount rate 6 7 8 Thin Slab Minimill C D E F G H 4.37% 6.84% (historical) 4.10% 35.00% 16.00% - K L M N 9 10 11 Capacity(million of tons of steel) 12 Shipments (12A) 13 14- Cold-rolled sheets (CR) (12A) 15 16 Revenue / ton 0 1986 1 2 3 5 6 7 8 1987 1988 1989 1990 1991 1992 1993 1994 9 1995 10 1996 11 1997 12 1998 ic 0 0 0 Hot-rolled sheets (HR) (12A) 0 0 oo 0 0 0.25 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0 0 0.175 0.35 0.35 0.35 0.35 0.35 0.35 0.35 0.35 0.35 17 - Hot-rolled sheets (HR) (12B) 18- Cold-rolled sheets (CR) (12B) 19 20 Total revenue (shipment*rev/ton) 21 Hot-rolled sheets (HR) 22- Cold-rolled sheets (CR) 23 24 Operating costs/ton 306.5 390.5 25- Hot-rolled sheets (HR) (12B) 225 26 Cold-rolled sheets (CR) (12B) 283 27 28 Total operating costs(shipment*cost/ton) 29 Hot-rolled sheets (HR) 30- Cold-rolled sheets (CR) 31 32 33 Depreciate over 10 years 34 35 Income 36- Hot-rolled sheets (HR) 37- Cold-rolled sheets (CR) 38 39 Total income 40 41 Taxes 42 0.00 Nucor CashFlow_CSP Competitors_Cash Flow_Modernize Competitors_CashFI_UNmodernize P Q R S T B 22- 23 Cold-rolled sheets (CR) 24 Operating costs/ton 25 Hot-rolled sheets (HR) (12B) 0 225 283 0.00 26 Cold-rolled sheets (CR) (12B) 27 28 Total operating costs(shipment*cost/ton) 29- 30- 31 32 Hot-rolled sheets (HR) Cold-rolled sheets (CR) 33 Depreciate over 10 years 34 35 Income 36 Hot-rolled sheets (HR) 37- Cold-rolled sheets (CR) 38 39 Total income 40 41 Taxes 42 43 Add back depreciation D E F G H - K L M N P Q R S T 0.00 44 Subtract capital expenditures 220.00 60.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 45 Subtract startup costs 0.00 0.00 0.00 30.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 46 Subtract working capital costs 47 0.00 0.00 0.00 30.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 48 Cash flow 49 Internal rate of return (IRR) 50 Discounted cash flow 51 52 Sum of discounted cash flow 53 54 Investment criterion: 25% ROA by year 5? Year 5 CF: 55 Year 5 Assets: 56 57 Year 5 ROA: 58 59 60 61 62 63 64 Nucor CashFlow_CSP Competitors_Cash Flow_Modernize Competitors_CashFI_UNmodernize FL 6.84% (historical) A B D E Assumptions: Annual growth rate of price of steel 4.37% Annual growth rate of operating costs 4.10% Tax rate 35.00% Discount rate 16.00% Modernized integrated mill 11 Capacity(million of tons of steel) Shipments (12A) - Hot-rolled sheets (HR) (12A) 1 - 234567890-2315672~~~333OMOTIZS G H J K L M N P Q 20 R S 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 20 10 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4 oo 0 0 1.35 23 2.1 2.1 2.1 2.1 2.1 2.1 1.35 1.35 1.35 1.35 1.35 1.35 1335 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2 1.35 1.35 1.35 1.35 1.35 1.35 1.35 1.35 1. - Cold-rolled sheets (CR) (12A) Revenue/ton Hot-rolled sheets (HR) (12B) 326 - Cold-rolled sheets (CR) (12B) 454.5 Total revenue (shipment*rev/ton) - Hot-rolled sheets (HR) - Cold-rolled sheets (CR) Operating costs/ton - Hot-rolled sheets (HR) (12B) 261.5 349 Cold-rolled sheets (CR) (12B) Total operating costs(shipment*cost/ton) - Hot-rolled sheets (HR) Cold-rolled sheets (CR) Depreciate over 25 years 0 Income Hot-rolled sheets (HR) Cold-rolled sheets (CR) Total income Taxes Nucor_CashFlow_CSP Competitors_Cash Flow_Modernize Competitors_CashFI_UNmodernize AutoSave Off Nucor_Template (3) - Excel Search File Home Insert Draw Page Layout Formulas Data Review View Help Cut Arial Copy Paste 10 A A ab Wrap Text General BIU A == Merge & Center $ % 9500-00 Format Painter N Font Alignment K] Share AutoSum -- Fill Conditional Format as Formatting Table Cell Styles Insert Delete Format Clear Filter Sort & Find & Select Ideas Styles Cells Editing Ideas 0 Comments Number Clipboard D46 A B C D E F G H J K L M N P Q R S 1234567 Assumptions: Annual growth rate of price of steel 4.37% 6.84% (historical) Annual growth rate of operating costs 4.10% Tax rate 35.00% Discount rate 16.00% 0 1 1986 1987 2 1988 3 4 5 6 7 8 9 10 11 12 13 14 15 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 20 0 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4 0 1.68 1.68 1.68 1.68 1.68 1.68 1.68 1.68 1.68 1.68 1.68 1.68 1.68 1.68 1.68 1. 0 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1. 19 81234567822222222222033333333 29 Unmodernized integrated mill Capacity(million of tons of steel) Shipments (12A) - Hot-rolled sheets (HR) Cold-rolled sheets (CR) Revenue / ton - Hot-rolled sheets (HR) (12B) Cold-rolled sheets (CR) (12B) Total revenue (shipment*rev/ton) - Hot-rolled sheets (HR) Cold-rolled sheets (CR) Operating costs/ton - Hot-rolled sheets (HR) (12B) Cold-rolled sheets (CR) (12B) Total operating costs(shipment*cost/ton) - Hot-rolled sheets (HR) Cold-rolled sheets (CR) 325 453 300 403 Depreciate over 25 years (no expenditure to dep.) Income Hot-rolled sheets (HR) - Cold-rolled sheets (CR) Total income 39 40 41 Taxes 42 Ready 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Nucor_CashFlow_CSP Competitors_Cash Flow_Modernize Competitors_CashFI UNmodernize m + 100% A B 1 Exhibit 12B 0 D E F G H | J K L M N Modernized Integrated Mill Unmodernized Integrated Mill CR HR CR Thin-slab Minimill HR CR HR 7 Labor/ hour $20.00 $20.00 $23.50 $23.50 Scrap/ton $90.00 $90.00 $80.00 9 Man hours ton 1.75 10 Capacity Utilization 90.00% 2.65 90.00% 2.85 90.00% $80.00 4.50 90.00% $23.50 $23.50 $80.00 $80.00 3.90 75.00% 5.85 75.00% 2 1345698 Operating assumptions Operation costs/ton Labor $35.00 $53.00 Ore 0 0 $67.00 51 $105.50 54 $91.50 52 $141.00 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 Revenue / ton $306.50 $283.00 $390.50 $261.50 $349.00 $326.00 $454.50 $300.00 $403.00 $325.00 $453.00 29 44 1234567622222222222033333338RGILET Operating assumptions Nucor_CashFlow_CSP Competitors_Cash Flow_Modernize P Q R S T U Competitors_CashFI_UNmodernize > Paste LE PQ AA Aa A AA Font Styles Editing Dictate AT Styles Voice Clipboard Paragraph (Please Begin AFTER reading the case) As much as you can, I want you to work as a team on the Excel cash flow segments (thin slab, modernize, and unmodernized spreadsheets) of the analysis. You are being asked to apply three complementary types of analysis to the Nucor case: cash flow analysis (a template is provided), scenario analysis (i.e., changes within the model), and strategic analysis (i.e., considerations outside the model, such as competitor behavior). Your deliverable should be a memo of up to two single-spaced pages (plus attachments, including the Excel sheet you used for the analysis). This memo should have four sections: one for each type of analysis and one with your final recommendation explaining your judgment of what action the firm should take in light of these three analyses. Be sure to use subheadings, underlining, boldface or similar formatting to communicate your analysis and recommendations clearly and efficiently. In this assignment, your team will advise Ken Iverson, Nucor CEO, on whether to adopt SMS's CSP process. In your memo to him, please address the following issues. 1. Cash Flow Analysis (20 points) a. By its own investment criterion (i.e., 25% return on assets at five years), should Nucor undertake this investment? This calculation is what CEO Ken Iverson is most interested in at this time. b. What would more traditional investment criteria (such as NPV or IRR) suggest about this investment? Hints: 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, including the 4.37% growth rate in steel. Assume $220 million of the construction cost is incurred in 1986, the rest in '87. 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. Please note that Nucor ignored start-up expenses and working capital costs for its factory and depreciation. Thus, in figuring the assets of the minimill in Year 5, those expenses need to be added to the asset base before calculating ROA. 2. Scenario analysis (20 points) Related Documents details, attachments and requirements so tutors can provide a complete answer. Cash flow analysis Minimum 10 characters are required. Add to Library Search for a subject. More Report Get answer Answers in as fast as 15 minutes By continuing, you agree to our Privacy Policy, Terms of Use, and Honor Code. Company Get Course Hero Thin-slab Modernized Unmodernized Integrated mill Integrated mill HR CR HR CR HR CR Break-even 0.230 0.176 1.229 0.805 1.386 0.860 point (million tons) NPV IRR ROA at Year 5 -23.05 -134.12 542.19 13.35% 14% N/A 32.04% 16.42% N/A (Refer to appendix: table 1 to table 4) According to the cash flow analysis above, we think Nucor should choose the Thin-slab project. The reasons are as follows: Firstly, the net present value of thin-slab is higher than modernized project. Furthermore, the thin-slab project achieves a ROA of 32.04% the second year after set-up, which is more than 25% threshold. However, the modernized project only achieves a ROA of 16.42% at that year. In addition, the break-even point of thin-slab is much lower than that of modernized project. If Nucor initiates the thin-slab project, it can achieve more flexibility in operating. (h) Scenario analucis Careers Help Legal Connect with Us