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USEC INC Case Solution & Answer

USEC INC Case Solution

The growth in revenue from 2002 to 2005 is in line with previous years, however the revenue growth is also normal from period 2006 to 2010, because in this period the project is in installing phase, however from the period 2011 to 2012, the revenue increased significantly because in this period, the project started. However, these values are estimated based on best assumptions. These estimates are that the new plant will produce extra 2.5 in 2011, 4.5 in 2012, and 6.5 in 2013; including this the existing plant (old one) will reduce its production by 1 million every year.

Depreciation expense:-

Depreciation expense is the due portion of the cost of the company’s assets, which is shown in the income statement portion of the financial statement. Depreciation expense is a non-cashexpense because it does not involve cash. Moreover, theresults in the cash flows statement under the indirect method will add depreciation expense to the amount of net income.

The depreciation expense over the sales from the 2002 to 2005 is almost same with nominal differences, however from 2006 to 2010, the depreciation expense is same, because of using straight life method, however the depreciation expense from the 2011 to 2013 has increased by 4% from the previous year, because of the new plant’s depreciation along with that of the existing plant.

Royalty payment:-

A royalty is a payment made to the suppliers for the use of property, such as copyrighted works, franchises or natural resources. A royalty payment is made to the owner of the property, patent, copyrighted work by those who wish to make use of it for the purposes of generating revenue and other such attractive activities. In most cases, royalties are designed to pay off the supplier for the asset’s use, and they are legally required. With the existing plant, the company is not paying any royalty payment to the supplier, however when the company installs new plant with increased production, then the company would have to pay royalty payment to the supplier. Moreover, the royalty payment is 1% of gross revenue every year, which seems to be an expense for the company.

Selling, general and administrative:-    

Selling expenses are costs incurred by the sales department. These costs typically include salesperson’ salaries and wages, bonus,the costs of developing advertising and the artwork costs incurred for promotional materials.Administrative expenses are the expenses that an organization incurs however,these are not directly tied to a specific function such as manufacturing, production or sales along with the salaries of senior executives and costs of general services. Furthermore, the

selling expenses increase due to the increase in sales however, the the administrative expenses may be increased due to the hiring new staff.

Tax expense:-

Tax expense is a liability owing to the governmental departments.Moreover, tax expenses are calculated by multiplying the appropriate tax rate of a company by its income before taxes, after factoring in such variables as non-deductible items, tax assets and tax liabilities. Therefore, the company’s taxes increase because of the increase in revenue.

Dividend per share:-

It shows the net income allotted to each share of its ordinary shareholders. Moreover, the dividend per share (DPS) is the amount of dividends that the shareholders will receive on a share. It is calculated using the total dividends paid out to shareholders over one year and the total number of ordinary shareholders. The company gives dividend per share on a yearly basis.

Goodwill:-

Goodwill is the intangible asset of the company.Goodwill arises when the company purchases another company more than its cost, the difference is measured in the amount of good will.The balance sheet shows that the company purchased a new company in year 2004 and recorded full goodwill expense in 2006. Goodwill represents assets that are not separately identifiable………………

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