UNIVERSITY OF OREGON INVESTMENT GROUP

November 14, 2008

Materials Steel

NUCOR CORPORATION
BUY
Stock Data Price (52 weeks) Symbol/Exchange Beta Shares Outstanding Average daily volume (3 month average) Current market cap Current Price Dividend Dividend Yield Valuation (per share) DCF Analysis Comparables Analysis Target Price Current Price (as of 11/10/2008) Summary Financials in Thousands Revenue Net Income BUSINESS OVERVIEW Nucor Corporation was incorporated in Delaware in 1958. Now headquartered in Charlotte, NC, manufactures and sells steel and steel products. Nucor produces the most steel of any company in the United States and is the largest steel recycler of scrap steel, the primary material for production in minimills in North America. Nucor operates in 23 states, Ontario, Canada, Trinidad and has its corporate offices in Charlotte, NC. Overall Business Strategy Nucors growth strategy is driven on four fronts. The first is to optimize and increase efficiency of current operations. The second is through strategic acquisitions. The third is through capital expenditures on new plants and development of new technologies for markets in which it believes it has a substantial cost advantage. Finally, the fourth is global expansion through joint ventures that incorporate and leverage new technologies. $26.30-$83.56 NUE/NYSE 1.96 313,949,595 9,763,460 $11,029,049,272 $35.13 $ 1.28 3.64% $58.61 $25.35 $51.96 $35.13

2007 Actual $16,592,976 $1,471,947

Covering Analyst: Austin Swank Email: aswank@uoregon.edu

The University of Oregon Investment Group (UOIG) is a student run organization whose purpose is strictly educational. Member students are not certified or licensed to give investment advice or analyze securities, nor do they purport to be. Members of UOIG may have clerked, interned or held various employment positions with firms held in UOIGs portfolio. In addition, members of UOIG may attempt to obtain employment positions with firms held in UOIGs portfolio.

Nucor Corporation

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Product Diversity Nucor is North Americas most diversified steel producer. With this diversity, Nucor is not dependant on one or two markets in the short run. This diversity has been a significant contributor to Nucors ability to maintain profitability every quarter since 1966.

Operating Segments Nucor operates under three main segments consisting of Steel Mills, Steel Products and Raw Materials. Steel Mills Nucor operates scrap-based steel mills in nineteen facilities which utilize modern steelmaking techniques and produce steel at a cost competitive with steel manufactured anywhere in the world. The steel mills segment is comprised of bar, sheet, structural and plate mills. Bar mills produce concrete reinforcing bars, hot rolled bars, rod, light shapes, structural angles and channel, wire mesh and guard rail in carbon and alloy steels. These products primarily serve the agricultural, automotive, construction, energy, furniture, machinery, metal building, railroad, recreational equipment, shipbuilding, heavy truck and trailer market segments. Sheet mills produce flat-rolled steel for the automotive, appliance, pipe and tube, construction and other industries. Structural mills produce wide range steel beams, pilings and heavy structural steel products for fabricators, construction companies, manufacturers and steel service centers. The plate mill segment operates two plate mills. The first, in North Carolina, produces plate for manufacturers of heavy equipment, rail cars, ships, barges, refinery tanks and other. The other mill in Tuscaloosa, AL complements the North Carolina plant by offering thinner gauges of coiled and cut-to-length plate used in the pipe and tube, pressure vessel, transportation and construction industries. Through the first three quarters of 2008, the steel mills segment comprised 71% of total sales. Operations Nucors mills are among the most modern and efficient mills in the United States. The mills use recycled steel scrap and other metallics to melt in electric arc furnaces and pour into continuous casting systems. Rolling mills then convert the billets, blooms and slabs into rebar, angles, rounds, channels, flats, sheet, beams, plate and other products. Operations in the rolling mills are highly automated and require fewer operating employees compared to older mills. Due to this, employment costs are only approximately 7% of sales. Steel mills consume large quantities of electricity and gas, yet total energy costs per ton remained flat from 2006 to 2007. Moreover, energy costs were less than 10% of sales dollars in both years due to the efficiency of Nucors mills and partial hedging against exposure to increases in energy costs. The most significant element in the total cost of steel production is scrap and scrap substitutes. The average cost of scrap and scrap substitute increased 13% in 2007 from 2006. However, a raw material surcharge implemented in 2004 has allowed Nucor to maintain operating margins in spite of volatile scrap and scrap substitute costs. The annual production capacity of all Nucors steel mills is more than 25,000,000 tons. Total shipments for the first nine months increased by 5% from 16,503,000 in 2007 to 17,384,000 in 2008. Steel shipments to outside customers increased 1% to 15,285,000 tons compared with 15,157,000 tons. This increase is smaller than total shipments due to Nucor acquiring some of its downstream customers involved in the companys vertical integration plan.

Nucor Corporation

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Steel Products Segment and Operations The steel products segment is comprised of Vulcraft and Verco, reinforcing products, steel mesh, grating and fastener, building group and light gauge steel framing, and cold finish. Through the first three quarters of 2008, this segment comprised approximately 16.2% of revenue. Vulcraft produces and markets steel joist and joist girders. Material costs, primarily steel, were approximately 55% of joist revenue in 2007. However, Vulcraft obtained 99% of its steel requirements for joists and joist girders from the Nucor bar mills. Freight costs comprise less than 10% of revenue by maintaining an extensive fleet of trucks in-house to ensure on-time delivery. Verco produces steel decking and obtains 75% of its steel requirements internally from Nucor sheet mills. Steel joist, joist girders and steel decking are used extensively as part of the roof and floor support systems in manufacturing buildings, retail stores, shopping centers, warehouses, schools, churches, hospitals, and somewhat in mutli-story buildings and apartments. Therefore sales of these products are heavily dependent on the non-residential building construction market. Reinforcing products are operated under the subsidiary of Harris Steel. It fabricates reinforcing steel (rebar) in Canada and the U.S. Reinforcing products are essential to concrete construction by supplying strength as well as protecting the concrete from cracking. Harris Steel provides value through bidding on a wide variety of construction work which can be primarily classified as infrastructure, including highways, bridges, reservoirs, utilities, hospitals, schools, airports and stadiums. The steel mesh, grating and fastener division and subsidiaries manufacture wire products, grating and industrial bolts. Nucor and its subsidiary, Harris Steel, produce steel mesh. In October 2007, Nucor acquired substantially all of the assets of steel mesh producer Nelson Steel for approximately $53.2 million in cash. The combined annual production capacity of the steel mesh facilities is approximately 233,000 tons. Building Group and Light Gauge Steel Framing Nucor manufactures custom-engineered and standard metal buildings and components and load bearing light gauge steel framing systems for the commercial, residential and institutional construction markets. Buildings Group Nucor manufacturers metal buildings and components throughout the U.S. under Nucor Building Systems and four previous Magnatrax metal building brands: American Buildings Company, Kirby Building Systems, Gulf States Manufacturers and CBC Steel Buildings. This sub-segment produces buildings ranging from less than 1,000 square feet to more than 1,000,000 square feet. Complete metal building packages can be customized and designed with other materials such as glass, wood, and masonry to produce buildings designed with costs and aesthetics in mind to customers special requirements. The Buildings Group sales were a record 195,000 tons in 2007. The group also obtains a significant portion of its steel requirements internally from the Nucor bar and sheet mills. Light Gauge Steel Framing Nucor, operating as NUCONSTEEL (Nucon), specializes in load bearing light gauge steel framing systems for both the residential and commercial construction markets. Nucon also sells its products through a growing network of authorized fabricators located throughout the United States. In 2004, Nucon introduced the NUFRAME automated wall panel system and the NUTRUSS automated truss system. Nucon uses these systems in the residential and truss fabrication facility. In March of 2006, Nucor formed a joint venture with Lennar Corporation, NEXFRAME, LP. This was established to provide comprehensive light gauge steel framing solutions for residential construction markets across the nation. Cold Finish Nucor is North Americas largest producer of cold finish products for a wide range of industrial markets. This division produces cold drawn, turned, ground, and polished steel bars that are used for shafting and precision machine parts. The bars are sold to the automotive, farm machinery, hydraulic, appliance and electric motor industries as well as by service centers. Nucor Cold Finish bars are used in tens of thousands of products including anchor bolts, farm machinery, hydraulic cylinders and shafting for air conditioning compressors, ceiling fan motors, garage door openers, electric motors and lawn mowers. All of the segments facilities are among the most modern in the world, using in-line electronic quality testing. The segment also obtains most of its steel from Nucor bar mills. These two factors combined results in a highly competitive cost structure. In 2007 sales were a record 449,000 tons, a 37% increase over 2006, and capacity is approximately 860,000 tons per year.
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Nucor Corporation

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Raw Materials Nucor has a raw materials strategy to control six to seven million tons per year of high quality metallics for consumption at its steel mills. Nucor has a 25% share in a joint venture with three other companies operating a HIsmelt plant in Kwinana, Western Australia. This process converts iron ore fines and coal fines to liquid metal, removing the need for blast furnaces, sinter/pellet plants and coke ovens. Nucor also operates an idled direct reduced iron plant under the Nu-Iron Unlimited division based in Trinidad. This site benefits from a low cost supply of natural gas and favorable positioning for receipt of Brazilian iron ore and shipment of direct reduced iron to the United States. In February 2008, Nucor acquired SHV North America Corporation, which owned 100% of The David J. Joseph Company. This acquisition expanded Nucors direct ownership in the steel scrap supply chain and allowed the company to further its raw materials strategy. Since scrap is the companys largest cost, this acquisition will give Nucor more efficiency and a lower cost of goods sold as a percentage of revenue. RECENT NEWS November 9, 2008 China announces an economic stimulus program totaling $586 billion aiming to bolster domestic demand and help avert a global recession. The stimulus package is intended to alleviate the slowdown in Chinas housing and investment boom. This should increase global demand and purchases of raw materials from the U.S. and other developed nations. October 25, 2008 Chairman Dan DiMicco announces that the international financial crisis has not affected the companys plans to build a $2 billion pig iron facility. If it is built, it would represent the first domestic greenfield pig iron facility built in more than 30 years. This would help Nucor become more efficient and reduce cost of goods sold as pig iron gets added to recycled scrap steel to improve quality. October 16, 2008 Nucor reports record results for third quarter and first nine months of 2008. Third quarter net earnings and net sales increased by 93% and 75% respectively from the same period in 2007. The increases in sales and net earnings are attributable in part to the significant acquisitions made by Nucor in the last 21 months including Harris Steel Group in March 2007 and The David J. Joseph Company in February 2008. February 29, 2008 Nucor completed the acquisition of SHV North America Corporation, which owns 100% of The David Joseph Company (DJJ) for $1.44 billion. DJJ has been the broker of ferrous scrap for Nucor since 1969. This acquisition provides an ideal growth platform for Nucor to expand ownership in the steel scrap supply chain. Furthermore, this provides a partial hedge against scrap market volatility for their steel mills. INDUSTRY ANALYSIS AND NUCOR Nucor operates in the Iron and Steel industry, primarily as a minimill but also with certain characteristics of integrated producers. Minimills are steel companies that produce steel by melting recycled ferrous scrap in electric arc furnaces. These differ from integrated steel makers in that integrated steel mills produce steel from iron ore, coal and lime. This allows minimills to have both a labor and capital cost advantage compared to integrated steel makers. Market Segments This industry serves four major segments comprising 75% of total production. The largest consumers of steel production are downstream steel processers which include manufacturers of pipe or rolled steel products and steel service and distribution centers which sell steel to a range of different industries. The automotive and construction industries account for 15% and 14% of demand respectively. According to analysts projections, the car and automobile manufacturing industry is expected to grow 7.7% over the next five years, and the single family home building industry is expected to grow by 23.9% over the same period.
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Cost Structure Industry wide, the major cost incurred by companies is expenditures on raw materials, which accounts for approximately 51% of revenue. Fuel and salaries account for 8% and 6% of revenue respectively. Even though the industry is highly capital intensive, it employs close to 100,000 people. Substantial amounts of fuel are necessary for production using both blast furnaces and electric arc furnaces, which is Nucors primary form of production. Depreciation accounts for approximately 4% of expenses. Economic growth is the primary factor affecting short-term performance of the industrial metals industry as measured by real gross domestic product. Companies in this industry are dependent on the fortunes of the cyclical auto and construction industries due to those two industries accounting for 29.5% of US direct steel shipments in 2007 according to the American Iron and Steel Institute (AISI). Currently steel is facing strong competition from other materials for motor vehicle manufacturing and thus demand is expected to trend downward. However, in 1998 the AISI established the North American Steel Framing Alliance to promote the use of light gauge steel framing in residential construction. Steel provides an advantage over normal housing materials, in that steel is stronger, has relatively steady prices, and recycled steel can be used. The industry is working to boost the market penetration of steel as a housing material as currently only a very small percentage of new homes are framed with steel. So far during this economic crunch, the growth in steel as a housing material has offset the loss of automotive demand. Steel produced by minimills is not competitive in terms of quality as compared with output from large integrated mills. To improve the quality for use in motor vehicle manufacturing and appliances, the raw material inputs must be adjusted, usually by increasing pig iron as a portion in the mix. With most minimill firms, this requires a reliance on integrated producers as most pig iron is produced in blast furnaces. However, Nucor plans to construct its own pig iron facility which will mitigate this dependence on outside firms. Currently, the most important long-term trends shaping the industrial metals industries are related to new manufacturing technology, consolidation, foreign competition and imports, and raw material costs. Nucor uses the breakthrough technology of strip casting, to which Nucor holds exclusive rights in the United States and Brazil. Strip casting involves the direct casting of molten steel into final shape and thickness without further hot or cold rolling. This allows lower investment and operating costs, reduced energy consumption by up to 80%, and small scale plants that can be built with existing technology. Since Nucor is a larger firm in the industry, they are more likely to pursue acquisitions versus being acquired. Raw material costs have been controlled through the companys vertical integration strategy. S.W.O.T. ANALYSIS Strengths Exclusive rights to strip casting in the United States and Brazil which could revolutionize the industry, further solidifying Nucors cost advantage Hedges and raw material surcharges to pass increases in costs to customers Large cash balance available to repurchase stock or make future acquisitions should valuations appear attractive Performance is not tied to any one steel market due to their product line diversity Weaknesses Although the company is diversified, it is dependent on the automotive and construction sector Falling US scrap prices contribute to declining steel prices Opportunities Steel as an increasingly used material in construction, especially the housing sector Further gains in efficiency and reductions environmental externalities
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Threats An increasing number of minimills being built around the world as the cost and environmental advantage become more apparent Steel faces strong competition from other materials in motor vehicle manufacturing CATALYSTS Upside Steel framing becomes a new standard for house framing Bailout for auto industry increase demand for steel Government initiatives to improve access to credit are successful Downside Oversupply resulting from domestic overcapacity or an increase in imported steel drives prices down Chinese production grows disproportionately to Chinese demand to the point China begins exporting COMPARABLES ANALYSIS When selecting my comparables, I searched for companies that are direct competitors with Nucor; therefore they are all subject to the same macroeconomic risk. Since Nucors operations incorporate both those of a minimill and an integrated producer, I wanted to include both types of companies. Also, I wanted to use companies that have similar business structures and revenue drivers. I used the following metrics: EV/Revenue - This was used to measure size of the company in relation to its ability to generate revenue. EV/EBITDA - This metric is used for several reasons. One is that as some of the comparables in this industry are highly leveraged, EBITDA was used to see the earning power before depreciation and amortization are calculated into accounting profits. EV/Operating Cash Flows - This metric is also used for several reasons. One is that since companies in this industry carry high amounts of debt, operating cash flows are important in the ability to pay down debt. When calculating the EV/Operating Cash Flows, one comparable, Commercial Metals Company, had negative cash flows for the trailing twelve months. Therefore, I removed this from the calculation and weighted the other four comparables at 25% each. United States Steel Corporation (X) 20% United States Steel Corporation produces steel products. It operates through three segments: Flatrolled Products, U. S. Steel Europe, and Tubular Products. The Flat-rolled Products segment produces slabs, sheets, tin mill products, strip mill plates, rounds, and coke. It serves customers in the service center, conversion, transportation, construction, container, and appliance and electrical markets in North America. The U.S. Steel Europe segment manufactures and sells sheet, strip mill plate, tin mill, and tubular products, as well as heating radiators and refractories. It serves customers in the central, western, and southern European construction, service center, conversion, container, transportation, and appliance and electrical, as well as oil, gas, and petrochemical markets. The Tubular products segment produces and sells seamless and welded tubular products for the oil, gas, and petrochemical markets. United States Steel Corporation is also involved in the production and sale of iron ore pellets, as well as the provision of transportation services. (Yahoo! Finance) Gerdau Ameristeel Corporation (GNA) 20% Gerdau Ameristeel Corporation, through its subsidiaries, operates steel minimills in the United States and Canada. The company operates through two segments, Minimills and Downstream Operations. The Minimills segment manufactures and markets various
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steel products, including reinforcing steel bars, merchant bars, structural shapes, beams, special sections, coiled wire rods, and flat rolled sheets. The Downstream Operations segment offers rebar fabrication and epoxy coating, railroad spikes, and cold drawn products, as well as engages in super light beam processing; and the production of elevator guide rails, grinding balls, wire mesh, collated nails, wire drawing, and fence posts. It sells its products to steel service centers, steel fabricators, and original equipment manufacturers for use in various industries, including non-residential, infrastructure, commercial, industrial and residential construction, metal building, manufacturing, mining, automotive, cellular and electrical transmission, and equipment manufacturing industries. (Yahoo! Finance) Steel Dynamics (STLD) 20% Steel Dynamics, Inc., together with its subsidiaries, engages in the manufacture and sale of steel products in the United States. It operates in three segments: Steel Operations, Fabrication Operations, and Steel Scrap and Scrap Substitute Operations. The Steel Operations segment offers hot rolled, cold rolled, and coated steel products, including light gauge hot-rolled, galvanized, and painted products; structural steel beams and pilings; special bar quality and merchant bar quality rounds, and round-cornered squares; and billets and merchant steel products, such as angles, plain rounds, flats, and channels. This segment serves cold finishers, forgers, intermediate processors, original equipment manufacturers, steel service centers, and fabricators. The Fabrication Operations segment engages in fabricating trusses, girders, steel joists, and steel decking used within the nonresidential construction industry. The Steel Scrap and Scrap Substitute Operations segment offers heavy melting steel, busheling, bundled scrap, shredded scrap, and other scrap metal products, such as steel turnings and cast iron used in foundry and steel mill applications. (Yahoo! Finance) AK Steel Holding (AKS) 20% AK Steel Holding Corporation, through its subsidiaries, produces flat-rolled carbon, stainless, and electrical steels, as well as tubular products in the United States. It manufactures flat-rolled carbon steels, including coated, cold-rolled, and hot-rolled products; and specialty stainless and electrical steels that are sold in slab, hot band, and sheet and strip forms. The company also involves in finishing flat-rolled carbon and stainless steel into welded steel tubing, which is used in the automotive, large truck, and construction markets; and trades in steel and steel products in Europe. It sells flat-rolled carbon steel products primarily to automotive manufacturers; and to customers in the appliance, industrial machinery and equipment, and construction markets consisting of manufacturers of home appliances, and heating, ventilation, and air conditioning equipment. The company also sells its coated, cold rolled, and hot rolled carbon steel products to distributors, service centers, and converters. AK Steel Holding sells its stainless steel products primarily to manufacturers and their suppliers in the automotive industry; manufacturers of food handling, chemical processing, pollution control, and medical and health equipment; and distributors and service centers. It sells its electrical steels to the manufacturers of power transmission and distribution transformers, and electrical motors and generators. (Yahoo! Finance) Commercial Metals Group (CMC) 20% Commercial Metals Company engages in the manufacture, recycle, market, and distribution of steel and metal products and related materials and services in the United States and internationally. It operates four steel minimills that produce reinforcing bar, angles, flats, rounds, small beams, fence-post sections, and other shapes; scrap metal processing facilities that directly support these minimills; a copper tube minimill; and a railroad rail salvage company. The company also operates a rolling mill that produces primarily reinforcing bar and merchant products; wire rods; and steel fabrication plants primarily for reinforcing bar. In addition, Commercial Metals Company involves in domestic fabrication operations through steel fabrication and processing plants that bend, weld, cut, fabricate, distribute, and place steel, primarily reinforcing bar and angles; warehouses that sell or rent products for the installation of concrete; produces special sections for floors and support for ceilings and floors; produces steel fence posts; and treat steel with heat to strengthen and provide flexibility. Further, it engages in the recycling operations through metal processing plants located in the states of Texas, Oklahoma, Kansas, Louisiana, Arkansas, Missouri, Georgia, Tennessee, Florida, South Carolina, and North Carolina. Additionally, the company markets and distributes steel; copper and aluminum coil; sheet and tubing; ores; metal concentrates; industrial minerals; ferroalloys; and chemicals. Its customers include steel, nonferrous metals, metal fabrication, chemical, refractory, and transportation businesses. (Yahoo! Finance)
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DISCOUNTED CASH FLOW ANALYSIS Revenue I projected revenue by each operating segment to get an annual growth rate for the company as a whole. The long-term strength of the global infrastructure and the associated global growth in steel demand will drive Nucors growth and profitability. I project 2008 Quarter 4 revenues will grow by less than the first three quarters of this year due to current economic conditions. Therefore, I have each segment growing at a slower pace and growth dropping off steeply in 2009 from 2008. I feel that until more economic data is presented to the markets about future global growth and conditions, it is best to take a more conservative view. Furthermore, I feel that due to the current conditions, Nucor will make fewer acquisitions in 2009 and beyond, after their considerable cash balance is depleted to normal industry levels, from acquisitions and capital expenditures, than in 2008, which drove much of the growth in 2008. Steel Mills Net sales for the steel mills segment increased 39% over the first three quarters of 2007 due to the $249 increase (38%) in the average sales price per ton. In addition, net sales to outside customers increased by 1% over the same time period. I believe that revenue growth will steeply decline in 2009 and the growth rate will begin to decline at a slower pace from 2010 on, but with positive revenue growth. Steel Products The 55% increase in the steel products segments sales for the first three quarters was due to a 35% increase in shipments, primarily attributable to the acquisitions of Harris in March of 2007, Magnatrax Corporation in August 2007, and Ambassador in August 2008. Furthermore, Harris had continued to grow its rebar fabrication business by acquiring other rebar fabrication companies which contributed to the rise in shipments. Increased sales were also due to a 16% increase in the average sales price per ton. With this data, I projected steel products revenue growth at a lower rate due to Nucor making fewer acquisitions. Raw Materials Through the third quarter of 2008, approximately 77% of outside sales in the raw materials segment were from the brokerage operations of DJJ and approximately 22% of the outside sales were from the scrap processing facilities. Prior to the acquisition of DJJ, there were no outside sales of raw materials. Nucor first started reporting raw materials as a separate line item in 2008. All Other The all other category primarily includes Novosteel S.A., a steel trading business of which Nucor owns 75%. The period over period increase in sales are due to Nucor owning the interest in Novosteel for all of 2008 versus only a portion of 2007 (since March 2007), combined with increased sales price per ton. From 2009 onwards, I feel that this segment will grow at a much lower rate. Expenses and Other Items I projected expenses using the percentage of revenue method. Cost of Products Sold Over the past three years, Nucor has faced rising costs to produce their products. I feel that this trend will continue into 2009 and then begin to reverse with cost of goods decreasing as a percentage of revenue as Nucor continues their vertical integration and better incorporates their acquisitions into the company. With raw materials as a large percentage of costs coupled with expansions and purchases of raw material suppliers, Nucor will be able to increase their gross margin through internal sales. Marketing, Administrative, and Other Expenses The primary components of this line item are freight and profit sharing costs. I projected this as a constant percentage of revenue as Nucor has the ability to pass on increases in costs of freight and fuel to customers. Profit sharing fluctuates with pre-tax earnings and fundamentally to a certain extent revenues.

Nucor Corporation

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Depreciation and Amortization As previously stated, the industry average for deprecation is 4% of revenues. However, I feel that since Nucor experiences a higher return on assets translating to higher sales for depreciable assets, an amount less than 4% is more appropriate. Also Nucor has not had depreciation expense greater than 4% since 2004. I projected depreciation for 2008 using the percentage from the first three quarters of this year. From here, I increased depreciation as a percent of revenue as the company continues to make further capital expenditures, which I believe will provide diminishing returns causing depreciation expense to move towards the industry average. Amortization was projected using managements projections through 2012. I noticed a decreasing trend; therefore I continued to decrease amortization as a percentage of revenue. Working Capital Working capital is projected as a percentage of sales. I feel that excess cash does not need to be removed from current assets as the company reports working capital as a straight subtraction of all current assets minus all current liabilities. The current ratio was 2.4 at the end of the first nine months of 2008 and 3.2 at the end of 2007. Nucor plans to use $1.6 billion in cash to finance the new pig iron facility in 2010. Therefore, I decreased current assets in 2010 and set this percentage as the new constant, onward to account for this change. Furthermore, I believe that after this major capital expenditure is completed and acquisitions decrease from 2008 levels, Nucor will work towards bringing its current ratio back to pre 2008 levels by using cash generated from operations above the project percentage for current assets. Therefore I show current liabilities decreasing as a percentage of revenue. Capital Expenditures & Acquisitions Management projects capital expenditures to be approximately $1.1 billion in 2008 which represents an increase of more than 50% over capital expenditures in 2007. This change can be attributed to acquisitions made during 2008 and the associated expenditures necessary for integration. One major capital expenditure on the horizon is the planned $2 billion state-of-the-art iron making facility to produce pig iron mentioned before. In accordance with company projections, this project will be complete over multiple years with plans to start up in either 2010 or 2011. After this project is completed, I believe that capital expenditures will decrease as a percentage of revenue due to a shift of focus from expansion to maintenance in line as a proportion of revenue growth. Acquisitions for the first three quarters of 2008 totaled approximately $1.8 billion. Due to the semi-sporadic nature of acquisitions, it was difficult to project future purchases. However, I feel that due to current economic conditions causing some companies to become more attractive for acquisition and Nucors vertical integration strategy, the company will continue to make acquisitions into the future. Acquisitions in 2007 and 2008 were significantly higher than in previous years and I believe this trend will not continue into the future with acquisitions moving back towards the historical norm. However, Nucor will continue to make acquisitions but at a lesser amount. To account for the unpredictability of acquisitions, I spread future acquisition costs across the projected period. Cost of Debt In June 2008, Nucor issued $1.00 billion in debt in three tranches, $250 million 5% notes due 2013, $500 million 5.85% notes due 2018 and $250 million 6.4% notes due 2037. The weighted average of this debt is 5.775%. I feel this is an appropriate representation of Nucors cost of debt given that it was issued during the current credit crisis and the company maintains an S&P Long-Term Credit Rating of A+ and a Short-Term rating of Extremely Strong (A1). Furthermore, Nucor holds the highest credit rating of any North American metals and mining company. Beta I first ran a five year monthly regression of Nucors returns on the S&P 500, but found that at 1.01 this was considerably lower than the betas I regressed for rest of the comparables. Furthermore, this fundamentally did not make sense by looking at the stocks returns compared to the S&P 500 as Nucor movements are more volatile. Based on this conclusion, I calculated my beta using the Hamada equation. I included each of my comparable companies as well as other firms operating in the steel industry. The Debt/Equity ratio was computed using book value of long-term debt divided by the book value of equity.

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RECOMMENDATION After analyzing the steel manufacturing industry and how Nucor operates within the industry, I feel that Nucors competitive positioning is conducive to industry outperformance. Although the comparables analysis shows Nucor is 28% overvalued, I believe this is partially due to an overcorrection of the comparables stock prices. I feel that my discounted cash flow analysis with an undervaluation of 67% provides a better representation of the value of the firm. Based on this assumption, I have weighted my DCF at 80% and the comparables analysis at 20%, giving an undervaluation of 48.28%. Currently, Tall Firs is underweight IME with the benchmark. DADCOs primarily invests in small cap growth companies. With this undervaluation and the current sector weightings, I recommend a BUY for the Tall Firs portfolio.

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APPENDIX 1 COMPARABLES ANALYSIS

GerdauAmeristeel Corporation(GNA) 20% $ 4.12 432,982,716 $ 1,783,888,790 $ 3,054,184,000 $ 4,838,072,790 $ 3,588,306,000 $ 8,826,487,000 2.36 $628,283,000 CommercialMetals Company(CMC) Mean 20% $ 10.54 $12.78 113,799,128 $ 191,349,267.60 $ 1,199,442,809 $ 1,850,031,239.91 $ 1,197,533,000 $ 2,051,960,200.00 $ 2,396,975,809 $ 3,901,991,439.91 $528,968,000 $ 1,912,164,400.00 $ 10,427,378,000 $ 11,927,297,200.00 2.07 2.51 $(43,456,000) $ 654,528,600.00 ImpliedValue MultipleWeights 0.35 $16.56 33.33% 2.56 $25.89 33.33% 7.30 $33.60 33.33% $25.35 $35.04 28%

Nucor(NUE) CurrentPrice SharesOutstanding MarketCap LongTermDebt EnterpriseValue EBITDA Revenue Beta OperatingCashFlow Metrics EV/Revenue EV/EBITDA EV/OperatingCashFlow $35.04 313,949,595 $11,000,793,809 $3,086,200,000 $14,086,993,809 $4,387,341,000 $23,909,148,000 1.96 $1,866,873,000

USSteelCorp(X) 20% $31.23 116,256,638 $3,630,694,805 $3,120,000,000 $6,750,694,805 $3,163,000,000 $24,184,000,000 2.96 $2,041,000,000

SteelDynamics(STLD) 20% $8.88 181,691,718 $ 1,613,422,456 $ 2,235,784,000 $ 3,849,206,456 $ 1,193,548,000 $ 8,321,121,000 1.78 $ 483,316,000

AKSteelHolding(AKS) 20% $9.13 112,016,138 $ 1,022,707,340 $ 652,300,000 $ 1,675,007,340 $ 1,087,000,000 $ 7,877,500,000 3.39 $ 163,500,000

0.59 3.21 7.55

0.28 2.13 3.31

0.55 1.35 7.70

0.46 3.23 7.96

0.21 1.54 10.24

0.23 4.53 55.16 ImpliedPrice CurrentPrice Overvalued

APPENDIX 2 REVENUE PROJECTIONS

inThousands NetSalestoExternalCustomers SteelMills %Growth SteelProducts %Growth RawMaterials %Growth AllOther %Growth Total %Growth 2007A 2008Q123A 2008Q4E 2008A+E 2009E 2010E $ 23,558,849 14.0% $6,426,771 17.0% $2,828,926 8.0% $ 509,822 5.0% $ 33,324,367 13.88% 2011E $ 26,503,705 12.5% $7,390,786 15.0% $3,026,951 7.0% $ 532,764 4.5% $ 37,454,206 12.39% 2012E $ 29,419,112 11.0% $8,129,865 10.0% $3,208,568 6.0% $ 554,075 4.0% $ 41,311,619 10.30% 2013E $31,772,641 8.0% $8,780,254 8.0% $3,368,996 5.0% $573,467 3.5% $44,495,358 7.71% 2014E $ 33,996,726 7.0% $9,394,872 7.0% $3,503,756 4.0% $ 590,671 3.0% $ 47,486,025 6.72% 2015E $ 36,036,530 6.0% $9,958,564 6.0% $3,608,869 3.0% $ 608,391 3.0% $ 50,212,354 5.74% 2016E $ 37,838,356 5.0% $ 10,456,492 5.0% $3,717,135 3.0% $ 626,643 3.0% $ 52,638,626 4.83% 2017E $ 39,351,890 4.0% $ 10,874,752 4.0% $3,828,649 3.0% $ 645,442 3.0% $ 54,700,733 3.92% 2018E $ 40,532,447 3.0% $ 11,200,995 3.0% $ 3,943,508 3.0% $664,806 3.0% $ 56,341,755 3.00%

$13,311,212 $13,844,672 $4,125,464 $17,970,136 $ 20,665,657 2.20% 39.09% 35.0% 15.0% $3,051,648 $3,243,420 $1,334,052 $4,577,472 $5,492,966 76.79% 55.46% 50.0% 20.0% $2,059,797 $343,300 $2,403,097 $2,619,376 9.0% $230,116 $364,499 $95,733 $ 460,232 $ 485,545 133.05% 100.0% 5.5% $16,592,976 $19,512,388 $5,898,549 $25,410,937 $ 29,263,544 12.49% 59.99% 53.14% 15.16%

Nucor Corporation

university of oregon investment group

http://uoig.uoregon.edu

APPENDIX 3 DISCOUNTED CASH FLOWS

inThousands NetSales %Growth Costs,Expenses,andOther CostofProductsSold %Revenue GrossMargin %Revenue Marketing,administrative,andotherexpenses %Revenue Interestexpense,net %Revenue Minorityinterests %Revenue Otherincome %Revenue TotalOperatingExpenses %Revenue EarningsbeforeIncomeTaxes %Revenue TaxRate ProvisionforIncomeTaxes NetEarnings %Revenue AddBack:DepreciationandAmortization AddBack:(1T)xInterestExpense CashFlowsfromOperations CurrentAssets %Revenue CurrentLiabilities %Revenue NetWorkingCapital NWC Subtract:CapitalExpenditures %ofRevenue Subtract:Acquisitions %ofRevenue FCF PVofFCF 0.25 1.25 2.25 3.25 4.25 5.25 6.25 7.25 8.25 9.25 10.25 2003A 2004A 2005A 2006A 2007A 2008Q123A 2008Q4E 2008A+E 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E $6,265,823 $11,376,828 $12,700,999 $ 14,751,270 $ 16,592,976 $ 19,512,388 $5,898,549 $ 25,410,937 $ 29,263,544 $33,324,367 $ 37,454,206 $ 41,311,619 $ 44,495,358 $ 47,486,025 $ 50,212,354 $ 52,638,626 $ 54,700,733 $ 56,341,755 81.57% 11.64% 16.14% 12.49% 59.99% 53.14% 15.16% 13.88% 12.39% 10.30% 7.71% 6.72% 5.74% 4.83% 3.92% 3.00% $5,993,492 95.65% $272,331 4.35% $165,369 2.64% $24,627 0.39% $23,904 0.38% $(11,547) 0.18% $6,195,845 98.88% $69,978 1.12% 7.40% $5,181 $64,797 1.03% $364,112 $22,804 $451,713 $1,639,784 26.17% $615,067 9.82% $1,024,717 $215,408 3.44% $34,941 0.56% $201,364 $9,174,611 80.64% $2,202,217 19.36% $374,730 3.29% $22,352 0.20% $80,840 0.71% $(1,596) 0.01% $9,650,937 84.83% $1,725,891 15.17% 35.22% $607,906 $1,117,985 9.83% $383,305 $14,479 $1,515,769 $3,182,132 27.97% $1,042,776 9.17% $2,139,356 $1,114,639 $285,925 2.51% $169,646 1.49% $(54,441) $10,108,805 79.59% $2,592,194 20.41% $459,460 3.62% $4,201 0.03% $110,650 0.87% $(9,200) 0.07% $10,673,916 84.04% $2,027,083 15.96% 35.02% $709,834 $1,317,249 10.37% $376,126 $2,730 $1,696,105 $4,081,611 32.14% $1,228,618 9.67% $2,852,993 $713,637 $331,466 2.61% $154,864 1.22% $496,138 $ 11,284,606 76.50% $3,466,664 23.50% $ 592,473 4.02% $(37,365) 0.25% $ 219,121 1.49% $ 0.00% $ 12,058,835 81.75% $ 2,692,435 18.25% 34.75% $ 935,653 $ 1,756,782 11.91% $ 365,269 $(24,380) $ 2,097,671 $4,683,065 31.75% $1,421,917 9.64% $3,261,148 $ 408,155 $ 338,404 2.29% $ 223,920 1.52% $1,127,192 $ 13,462,927 81.14% $3,130,049 18.86% $ 577,764 3.48% $ 5,469 0.03% $ 293,501 1.77% $ 0.00% $ 14,339,661 86.42% $ 2,253,315 13.58% 34.68% $ 781,368 $ 1,471,947 8.87% $ 427,556 $ 3,573 $ 1,903,076 $5,073,249 30.57% $1,582,036 9.53% $3,491,213 $ 230,065 $ 520,353 3.14% $1,542,666 9.30% $(390,008) $ 15,941,654 81.70% $3,570,734 18.30% $ 605,641 3.10% $ 68,109 0.35% $ 255,920 1.31% $4,895,315 82.99% $1,003,235 17.01% $ 220,214 3.73% $ 20,829 0.35% $ 74,422 1.26% $ $5,210,780 88.34% $ 687,769 11.66% 36.22% $ 249,125 $ 438,643 7.44% $ 138,403 $ 13,284 $ 590,330 $7,877,391 $ 20,836,969 82.00% $ 4,573,969 18.00% $ 825,855 3.25% $88,938 0.35% $ 330,342 1.30% $ $22,082,104 86.90% $ 3,328,833 13.10% 35.00% $ 1,165,091 $ 2,163,741 8.52% $ 543,750 $57,810 $ 2,765,301 $ 7,877,391 31.00% $ 3,303,422 13.00% $ 4,573,969 $ 1,082,756 $ 1,100,000 4.33% $ 2,032,875 8.00% $(1,450,330) $ 24,288,741 83.00% $ 4,974,802 17.00% $951,065 3.25% $ 87,791 0.30% $380,426 1.30% $ $ 25,708,023 87.85% $ 3,555,521 12.15% 35.00% $ 1,244,432 $ 2,311,088 7.90% $632,607 $ 57,064 $ 3,000,760 $ 9,071,698 31.00% $ 3,804,261 13.00% $ 5,267,438 $693,469 $ 1,170,542 4.00% $877,906 3.00% $258,842 $218,446 $27,325,981 82.00% $5,998,386 18.00% $1,083,042 3.25% $83,311 0.25% $433,217 1.30% $ $28,925,551 86.80% $4,398,816 13.20% 35.00% $1,539,586 $2,859,231 8.58% $738,687 $54,152 $3,652,070 $9,664,066 29.00% $4,332,168 13.00% $5,331,899 $64,461 $1,332,975 4.00% $333,244 1.00% $1,921,391 $1,415,700 $ 30,618,813 81.75% $ 6,835,393 18.25% $ 1,217,262 3.25% $ 93,636 0.25% $486,905 1.30% $ $ 32,416,615 86.55% $ 5,037,591 13.45% 35.00% $ 1,763,157 $ 3,274,434 8.74% $855,038 $ 60,863 $ 4,190,335 $ 10,861,720 29.00% $ 4,494,505 12.00% $ 6,367,215 $ 1,035,316 $ 1,310,897 3.50% $374,542 1.00% $ 1,469,580 $945,357 $ 33,668,970 81.50% $ 7,642,650 18.50% $ 1,342,628 3.25% $103,279 0.25% $537,051 1.30% $ $ 35,651,927 86.30% $ 5,659,692 13.70% 35.00% $ 1,980,892 $ 3,678,800 8.91% $973,956 $ 67,131 $ 4,719,887 $ 11,980,370 29.00% $ 4,750,836 11.50% $ 7,229,533 $862,318 $ 1,342,628 3.25% $413,116 1.00% $ 2,101,824 $ 1,180,445 $ 36,152,479 81.25% $ 8,342,880 18.75% $ 1,446,099 3.25% $111,238 0.25% $578,440 1.30% $ $ 38,288,256 86.05% $ 6,207,102 13.95% 35.00% $ 2,172,486 $ 4,034,617 9.07% $ 1,085,687 $ 72,305 $ 5,192,608 $ 12,903,654 29.00% $ 4,894,489 11.00% $ 8,009,165 $779,631 $ 1,334,861 3.00% $444,954 1.00% $ 2,633,163 $ 1,291,142 $ 38,463,680 81.00% $ 9,022,345 19.00% $ 1,543,296 3.25% $118,715 0.25% $617,318 1.30% $ $ 40,743,009 85.80% $ 6,743,016 14.20% 35.00% $ 2,360,055 $ 4,382,960 9.23% $ 1,196,648 $ 77,165 $ 5,656,773 $ 13,770,947 29.00% $ 4,986,033 10.50% $ 8,784,915 $775,750 $ 1,305,866 2.75% $356,145 0.75% $ 3,219,012 $ 1,378,053 $ 40,672,006 81.00% $ 9,540,347 19.00% $ 1,631,901 3.25% $125,531 0.25% $652,761 1.30% $ $ 43,082,199 85.80% $ 7,130,154 14.20% 35.00% $ 2,495,554 $ 4,634,600 9.23% $ 1,315,564 $ 81,595 $ 6,031,759 $ 14,561,583 29.00% $ 5,021,235 10.00% $ 9,540,347 $755,433 $ 1,380,840 2.75% $251,062 0.50% $ 3,644,425 $ 1,362,132 $ 42,637,287 81.00% $ 10,001,339 19.00% $ 1,710,755 3.25% $131,597 0.25% $684,302 1.30% $ $ 45,163,941 85.80% $ 7,474,685 14.20% 35.00% $ 2,616,140 $ 4,858,545 9.23% $ 1,379,132 $ 85,538 $ 6,323,215 $ 15,265,202 29.00% $ 5,132,266 9.75% $ 10,132,936 $592,588 $ 1,447,562 2.75% $263,193 0.50% $ 4,019,871 $ 1,311,744 $ 44,307,594 81.00% $ 10,393,139 19.00% $ 1,777,774 3.25% $136,752 0.25% $711,110 1.30% $ $ 46,933,229 85.80% $ 7,767,504 14.20% 35.00% $ 2,718,626 $ 5,048,878 9.23% $ 1,433,159 $ 88,889 $ 6,570,926 $ 15,863,213 29.00% $ 5,196,570 9.50% $ 10,666,643 $533,707 $ 1,504,270 2.75% $136,752 0.25% $ 4,396,196 $ 1,252,452 $ 45,636,822 81.00% $ 10,704,934 19.00% $ 1,831,107 3.25% $140,854 0.25% $732,443 1.30% $ $ 48,341,226 85.80% $ 8,000,529 14.20% 35.00% $ 2,800,185 $ 5,200,344 9.23% $ 1,476,154 $ 91,555 $ 6,768,053 $ 16,339,109 29.00% $ 5,352,467 9.50% $ 10,986,642 $319,999 $ 1,408,544 2.50% $140,854 0.25% $ 4,898,656 $ 1,218,450

$ 16,871,324 86.46% $ 2,641,064 13.54% 34.68% $ 915,966 $ 1,725,098 8.84% $ 405,347 $ 44,488 $ 2,174,933 $7,632,980

$3,121,974 $3,303,422 $4,511,006 $4,573,969 $1,082,756 $ 806,152 $ 293,848 4.13% $1,827,165 $ 205,710 9.36% 3.49% $(458,384) $ (991,983) $ (958,884)

12

Nucor Corporation

university of oregon investment group

http://uoig.uoregon.edu

APPENDIX 4 DEPRECIATION & AMORTIZATION

inThousands NetSales Depreciation %Revenue Amortization %Revenue Depreciation&Amortization %Revenue 2005A $12,700,999 $375,054 2.95% $1,072 0.01% $376,126 2.96% 2006A $14,751,270 $363,936 2.47% $1,333 0.01% $365,269 2.48% 2007A $16,592,976 $403,172 2.43% $24,384 0.15% $427,556 2.58% 2008Q123A $19,512,388 $354,291 1.82% $ 51,056 0.26% $405,347 2.08% 2008Q4E $ 5,898,549 $109,459 1.86% $28,944 0.49% $ 138,403 2.35% 2008A+E $ 25,410,937 $463,750 1.83% $ 80,000 0.31% $543,750 2.14% 2009E $ 29,263,544 $556,007 1.90% $ 76,600 0.26% $632,607 2.16% 2010E $ 33,324,367 $666,487 2.00% $ 72,200 0.22% $738,687 2.22% 2011E $ 37,454,206 $786,538 2.10% $ 68,500 0.18% $855,038 2.28% 2012E $41,311,619 $908,856 2.20% $65,100 0.16% $973,956 2.36% 2013E $ 44,495,358 $ 1,023,393 2.30% $ 62,294 0.14% $ 1,085,687 2.44% 2014E $ 47,486,025 $ 1,139,665 2.40% $ 56,983 0.12% $ 1,196,648 2.52% 2015E $ 50,212,354 $ 1,255,309 2.50% $ 60,255 0.12% $ 1,315,564 2.62% 2016E $ 52,638,626 $ 1,315,966 2.50% $ 63,166 0.12% $ 1,379,132 2.62% 2017E $ 54,700,733 $ 1,367,518 2.50% $ 65,641 0.12% $ 1,433,159 2.62% 2018E $ 56,341,755 $ 1,408,544 2.50% $ 67,610 0.12% $ 1,476,154 2.62%

APPENDIX 5 NET WORKING CAPITAL

inThousands CurrentAssets %Revenue CurrentLiabilities %Revenue NetWorkingCapital %Revenue NWC 2005A $12,700,999 $4,081,611 32.14% $1,228,618 9.67% $2,852,993 22.46% $713,637 2006A $14,751,270 $4,683,065 31.75% $1,421,917 9.64% $3,261,148 22.11% $408,155 2007A $16,592,976 $5,073,249 30.57% $1,582,036 9.53% $3,491,213 21.04% $230,065 2008Q123A 2008Q4E 2008A+E $19,512,388 $5,898,549 $25,410,937 $7,632,980 $ 7,877,391 $7,877,391 31.00% $3,121,974 $ 3,303,422 $3,303,422 13.00% $4,511,006 $ 4,573,969 $4,573,969 18.00% $ 1,082,756 $ 1,082,756 2009E $29,263,544 $9,071,698 31.00% $3,804,261 13.00% $5,267,438 18.00% $693,469 2010E $33,324,367 $9,664,066 29.00% $4,332,168 13.00% $5,331,899 16.00% $ 64,461 2011E $37,454,206 $ 10,861,720 29.00% $4,494,505 12.00% $6,367,215 17.00% $ 1,035,316 2012E $41,311,619 $11,980,370 29.00% $4,750,836 11.50% $7,229,533 17.50% $862,318 2013E $44,495,358 $ 12,903,654 29.00% $4,894,489 11.00% $8,009,165 18.00% $779,631 2014E $47,486,025 $ 13,770,947 29.00% $4,986,033 10.50% $8,784,915 18.50% $775,750 2015E $50,212,354 $ 14,561,583 29.00% $5,021,235 10.00% $9,540,347 19.00% $755,433 2016E $52,638,626 $ 15,265,202 29.00% $5,132,266 9.75% $ 10,132,936 19.25% $592,588 2017E $54,700,733 $ 15,863,213 29.00% $5,196,570 9.50% $ 10,666,643 19.50% $533,707 2018E $56,341,755 $ 16,339,109 29.00% $5,352,467 9.50% $ 10,986,642 19.50% $319,999

13

Nucor Corporation

university of oregon investment group

http://uoig.uoregon.edu

APPENDIX 6 DISCOUNTED CASH FLOWS ANALYSIS ASSUMPTIONS

TaxRate 10YearTreasury Beta MarketRiskPremium %Equity %Debt CAPM CostofDebt WACC

AssumptionsforDiscountedCashFlows 35.0% TerminalGrowthRate 3.818% TerminalValue 1.96 PVTerminal 7% SumofPVFreeCashFlow 78.1% LongTermDebt 21.9% FirmValue 17.57% EquityValue 5.78% SharesOutstanding 14.54% ImpliedPrice CurrentPrice Undervalued

3% $ 43,726,935 $ 10,876,270 $ 10,615,038 $3,091,600 $ 21,491,308 $ 18,399,708 313,950 $ 58.61 $ 35.04 67%

APPENDIX 7 HAMADA BETA & SENSITIVITY ANALYSIS

Company USSteelCorporation(X) SteelDynamics(STLD) CommercialMetalsGroup(CMC) RelianceSteel&Aluminum(RS) AKSteelHolding(AKS) AcelorMIttalADS(MT) WorthingtonIndustries(WOR) GerdauAmeristeelCorporation(GNA) Beta D/ERatio StandardError 2.965 0.51 0.450 1.779 1.29 0.438 2.067 0.73 0.391 1.796 0.93 0.370 3.394 0.45 0.618 2.538 0.46 0.481 1.179 0.27 0.297 2.358 0.69 0.444 Weight 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% 12.5%

Mean Median PureBusinessBeta(SampleBL) SampleD/E UnleveredBusinessBeta NUED/E NUEBeta HamadaFormula

2.259 2.302 2.26 0.66 1.58 0.38 1.96

0.66 0.60

0.436 0.441

1.58*((1+(10.35)*.38))

Beta() 3.27 2.84 2.40 1.96 1.53 1.09 0.66

StandardDeviation 3 2 1 1 2 3

ImpliedPrice $35.47 $40.11 $47.22 $58.61 $78.12 $115.19 $200.19

Undervalued 1.22% 14.47% 34.75% 67.26% 122.94% 228.74% 471.32%

Nucor Corporation

university of oregon investment group

http://uoig.uoregon.edu

APPENDIX 8 SOURCES Nucor 10-K Nucor 10-Q Nucor 2007 Annual Report Nucor.com IBIS World S&P Net Advantage WorldSteel.org American Iron and Steel Institute (AISI) Yahoo! Finance Google Finance

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