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Investment Production (millions of pounds Spread ($ per pound) Net revenues Production costs Transport Other costs

Investment Production (millions of pounds Spread ($ per pound) Net revenues Production costs Transport Other costs

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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### Investment Analysis for Polyzone Production This document details an investment analysis for polyzone production, evaluating both book and economic profitability under provided assumptions. #### Investment Details - **Initial Investment:** $110 million - **Production:** - Year 0: 0 - Year 1: 0 - Year 2: 52 million pounds - Years 3-10: 92 million pounds annually - **Spread:** $1.07 per pound - **Net Revenues:** - Year 1: $0 - Year 2: $55.64 million - Years 3-10: $98.44 million - **Costs:** - **Production Costs:** - Year 1: $0 - Year 2 and onwards: $42 million annually - **Transport Costs:** $0 - **Other Costs:** $32 million annually - **Cash Flow:** - Year 0: -$110 million - Year 1: $32 million - Year 2: -$18.36 million - Years 3-10: -$24.44 million - **Net Present Value (NPV):** At a discount rate \( r = 10\% \), NPV equals $0. Assume a 100% annual dividend payout. #### Task a Calculate year-by-year book and economic profitability with: - **Depreciation:** Straight-line over 10 years - **Cost of Capital:** 10% - Mark negative answers with a minus sign. - Do not leave cells blank; enter "0" where applicable. - Do not round intermediate calculations. - Enter income in millions (rounded to 2 decimal places). - Enter rates of return as percentages (rounded to 2 decimal places). **Data Entry Table:** | Period | Book Income ($) | Book Rate of Return (%) | Economic Income ($) | |--------|-----------------|-------------------------|---------------------| | 0 | | | | | 1 | | | | | 2 | | | | | 3 | | | | | 4 | | | | | 5 | | | | | 6 | | | | |
Transcribed Image Text:### Investment Analysis for Polyzone Production This document details an investment analysis for polyzone production, evaluating both book and economic profitability under provided assumptions. #### Investment Details - **Initial Investment:** $110 million - **Production:** - Year 0: 0 - Year 1: 0 - Year 2: 52 million pounds - Years 3-10: 92 million pounds annually - **Spread:** $1.07 per pound - **Net Revenues:** - Year 1: $0 - Year 2: $55.64 million - Years 3-10: $98.44 million - **Costs:** - **Production Costs:** - Year 1: $0 - Year 2 and onwards: $42 million annually - **Transport Costs:** $0 - **Other Costs:** $32 million annually - **Cash Flow:** - Year 0: -$110 million - Year 1: $32 million - Year 2: -$18.36 million - Years 3-10: -$24.44 million - **Net Present Value (NPV):** At a discount rate \( r = 10\% \), NPV equals $0. Assume a 100% annual dividend payout. #### Task a Calculate year-by-year book and economic profitability with: - **Depreciation:** Straight-line over 10 years - **Cost of Capital:** 10% - Mark negative answers with a minus sign. - Do not leave cells blank; enter "0" where applicable. - Do not round intermediate calculations. - Enter income in millions (rounded to 2 decimal places). - Enter rates of return as percentages (rounded to 2 decimal places). **Data Entry Table:** | Period | Book Income ($) | Book Rate of Return (%) | Economic Income ($) | |--------|-----------------|-------------------------|---------------------| | 0 | | | | | 1 | | | | | 2 | | | | | 3 | | | | | 4 | | | | | 5 | | | | | 6 | | | | |
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