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 %
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 %