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Internal Rate of Return and Slab Casting Essay

1. What have been the sources of Nucor’s competitive advantage so far (namely, up until 1986)? Do you think “business as usual” is likely to continue generating the same profits for Nucor? Why?

2. What are the technological risks associated with thin-slab casting? (What could go wrong and how bad would it be? You may find the spreadsheet posted with these preparation questions helpful here.)

3. What are the market risks associated with thin-slab casting? (What could go wrong and how bad would it be? You may also find the spreadsheet useful here.)

4. What are the financial risks associated with thin-slab casting? (What could go wrong and how bad would it be? Use the financial information in the case for guidance.)

5. If thin-slab casting works, do you think it is likely to generate a sustainable competitive advantage for Nucor?

6. Should Nucor commit to thin-slab casting?

Case Analysis Question

Make a recom m endation r egarding w hether Nucor should go forward with the t hin – slab casting project. In developing your recommendation, you should a ddress s everal questions .

1 . First, what have been the foundations of Nucor’s com petitive advantage o ver the past decade? Which of those (if any) are likely to help them succeed in the thin – slab casting venture?

2 . Second, do you think that thin – slab casting will be a source of s ustainable com petitive advantage? In answering this, you must consider two things.

a . One, do you think thin – slab casting will be a profitable investment?

There is a spreadsheet available for download along w ith this project that will help you m ake an assessm ent. This s preadsheet calculates the internal rate of return (IRR) of the new p roject using cash flow projections. The projections are based on a ssum ptions detailed in the notes below the m ain spr eadsheet.

Once you download the spreadsheet, you can exp erim ent with d ifferent values that correspond to different assum ptions regarding Nucor’s strategic concerns. Som e of these m ay have a l arge effect on the value of the project; others may not. Some of the issues raised in the case whose effect you m ay want t o c onsider include scrap prices, tim e to r each f ull capacity, and r esponses by com petitors in the new m arkets Nucor would be e ntering.

b . T wo, do you think that the profits obtained by thin – slab casting w ould be sustainable? Why or why not?
3 . T hird, what are t he options that would be opened or close d if Nucor p roceeded with thin – slab casting?

Your recom m endation should be based on both your calculations of cash flow projections and also on a m ore qualitative analysis about c om petitive advantage a nd p rofitabi lity, and t he extent to which they w ill be s ustainable (m eaning they cannot be easily im itated by other c om panies, etc.) .


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