USEC INC Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

USEC INC Case Solution

Introduction:-

USEC Inc.is the world’s largest supplier of enriched uranium fuel for the commercial power plants.In addition to this, the company also provides consultancy services department of energy (DOC). The company was publically traded that leased its technology from DOE. USEC Inc. has significant influence from the US Government through its contractual obligation and also from governmental who has security concerns.

In 1990, USEC Inc. was established, and in 1998 the company was privatized. The company has gaseous diffusion plant in Paducah Kentucky and another plant in Portsmouth, Ohio, which has placed cold standby under a contract with DOE. Now the company wants to extend its operation by building competing uranium enrichment in New Mexico. USEC Inc. served as US government agent for the Megatons to Megawatts program, a 20 years nuclear agreement between United States and Russia.

Enriched uranium process:-

Thisa type of uranium in which the percentage of the composition of uranium 235 has been increased through the process of isotope separation. Natural uranium is 99.284%, with 235U only constituting about 0.711% of its weight. 235U is the only nuclide existing in nature that is fissile with thermal neutrons. The Paducah plant has a capacity of 3.5 Millen SWU per year. Globally energy prices have increased for uranium and SWU.

USEC Inc hired Mackovjak as a research analyst, who had the responsibility of recommending the stock as either short or the long term senior partner. Moreover, he also recognized that USEC Inc was the beginning of the massive capital expenditure project known as American Centrifuge Project (ACP), which would double almost the scale of the company and would also increase the competitive advantage.

American Centrifuge Project (ACP):-

USEC aims to be the low cost producer of the enrichment industry through technology to gain competitive advantage. The project is expected to undertake $1.7 billion during the next five years, till the company has invested $100 million on the project. Moreover, further $1.6 billion could be invested in next 5 years.The 5 years expected investment is:

2006	2007	2008	2009	2010
$185	$300	$350	$350	$415

ACP project started depreciated in 2011 by using the straight line method over the 15 years with zero scrape value. The plant is expected to produce 2.5 million SWU in 2011, with increase in production by 2 million in next two years and it would reach its maximum capacity at 6.5 million SWU in 2013.

Selling and other expenses are expected to increase according to the revenue, whereas the electricity required for enrichment would also be reduced by 95%, therefore the overall cost would be reduced by 50%, relative to old gas diffusion process. The effect of 1% inflation is also taken into account.

Commentary of financials:-

Revenue:-

One of the benefits of expanding production to a large plant is that a large scale operation can result in economies of scale. Economies of scale express where the average cost of producing products reduces as the quantity produced increases. i.e., a single worker might not be very efficient at making all of the different parts of a product alone. On the other hand, a team of 10 staff members on ameeting who each specialize in manufacturing a small part of a product could churn out more units than 10 staff members who do it individually.......................

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