Use the cash flows and competitive spreads shown in the table below.
($ millions) Year 0 Year 1 Year 2 Years 3â10 Investment 130 Production (millions of pounds per year) 0 0 54 94 Spread ($ per pound) 1.09 1.09 1.09 1.09 Net revenues 0 0 58.86 102.46 Production costs 0 0 44.00 44.00 Transport 0 0 0 0 Other costs 0 34 34 34 Cash flow â130 34 â19.14 â24.46 NPV (at r = 6%) = 0
Assume the dividend payout ratio each year is 100%.
a. Calculate the year-by-year book and economic profitability for investment in polyzone production. Assume straight-line depreciation over 10 years and a cost of capital of 6%. (Negative answers should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Enter your income answers in millions rounded to 2 decimal places and enter the rate of return as a percent rounded to 2 decimal places.)
Period: 0 1 2 3 4 5 Book income ($) Book rate of return (%) Economic income ($)
6 7 8 9 10 Book income ($) Book rate of return (%) Economic income ($)
b-1. What is the economic rate of return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Economic rate of return %
b-2. Now compute the steady-state book rate of return (ROI) for a mature company producing polyzone. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
ROI %
Use the cash flows and competitive spreads shown in the table below.
| ($ millions) | ||||
| Year 0 | Year 1 | Year 2 | Years 3â10 | |
| Investment | 130 | |||
| Production (millions of pounds per year) | 0 | 0 | 54 | 94 |
| Spread ($ per pound) | 1.09 | 1.09 | 1.09 | 1.09 |
| Net revenues | 0 | 0 | 58.86 | 102.46 |
| Production costs | 0 | 0 | 44.00 | 44.00 |
| Transport | 0 | 0 | 0 | 0 |
| Other costs | 0 | 34 | 34 | 34 |
| Cash flow | â130 | 34 | â19.14 | â24.46 |
| NPV (at r = 6%) = 0 | ||||
Assume the dividend payout ratio each year is 100%.
a. Calculate the year-by-year book and economic profitability for investment in polyzone production. Assume straight-line depreciation over 10 years and a cost of capital of 6%. (Negative answers should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Enter your income answers in millions rounded to 2 decimal places and enter the rate of return as a percent rounded to 2 decimal places.)
| Period: | 0 | 1 | 2 | 3 | 4 | 5 |
| Book income ($) | ||||||
| Book rate of return (%) | ||||||
| Economic income ($) | ||||||
| 6 | 7 | 8 | 9 | 10 | |
| Book income ($) | |||||
| Book rate of return (%) | |||||
| Economic income ($) | |||||
b-1. What is the economic rate of return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Economic rate of return %
b-2. Now compute the steady-state book rate of return (ROI) for a mature company producing polyzone. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
ROI %
Related questions
Use the cash flows and competitive spreads shown in the table below.
| ($ millions) | ||||
| Year 0 | Year 1 | Year 2 | Years 3â10 | |
| Investment | 190 | |||
| Production (millions of pounds per year) | 0 | 0 | 49 | 89 |
| Spread ($ per pound) | 1.04 | 1.04 | 1.04 | 1.04 |
| Net revenues | 0 | 0 | 50.96 | 92.56 |
| Production costs | 0 | 0 | 39.00 | 39.00 |
| Transport | 0 | 0 | 0 | 0 |
| Other costs | 0 | 29 | 29 | 29 |
| Cash flow | â190 | 29 | â17.04 | â24.56 |
| NPV (at r = 6%) = 0 | ||||
Assume the dividend payout ratio each year is 100%.
a. Calculate the year-by-year book and economic profitability for investment in polyzone production. Assume straight-line depreciation over 10 years and a cost of capital of 6%. (Negative answers should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Enter your income answers in millions rounded to 2 decimal places and enter the rate of return as a percent rounded to 2 decimal places.)
| Period: | 0 | 1 | 2 | 3 | 4 | 5 |
| Book income ($) | ||||||
| Book rate of return (%) | ||||||
| Economic income ($) | ||||||
| 6 | 7 | 8 | 9 | 10 | |
| Book income ($) | |||||
| Book rate of return (%) | |||||
| Economic income ($) | |||||
b-1. What is the economic rate of return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Economic rate of return %
b-2. Now compute the steady-state book rate of return (ROI) for a mature company producing polyzone. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
ROI %
| Better Mousetraps has developed a new trap. It can go into production for an initial investment in equipment of $6.3 million. The equipment will be depreciated straight line over 6 years to a value of zero, but in fact it can be sold after 6 years for $536,000. The firm believes that working capital at each date must be maintained at a level of 10% of next yearâs forecast sales. The firm estimates production costs equal to $1.10 per trap and believes that the traps can be sold for $5 each. Sales forecasts are given in the following table. The project will come to an end in 6 years., when the trap becomes technologically obsolete. The firmâs tax bracket is 35%, and the required rate of return on the project is 10%. Use the MACRS depreciation schedule. |
| Year: | 0 | 1 | 2 | 3 | 4 | 5 | 6 | Thereafter |
| Sales (millions of traps) | 0 | .5 | .7 | .8 | .8 | .6 | .5 | 0 |
| a. | What is project NPV? (Do not round intermediate calculations. Enter your answer in millions rounded to 4 decimal places.) |
| NPV | $ million |
| b. | By how much would NPV increase if the firm depreciated its investment using the 5-year MACRS schedule? (Do not round intermediate calculations. Enter your answer in whole dollars not in millions.) |
| The NPV increases by $ . |
