Use the cash flows and competitive spreads shown in the table below. ($ millions) Year 0 Year 1 Year 2 Years 3–10 Investment 120 Production (millions of pounds per year) 0 0 42 82 Spread ($ per pound) .97 .97 .97 .97 Net revenues 0 0 40.74 79.54 Production costs 0 0 32.00 32.00 Transport 0 0 0 0 Other costs 0 22 22 22 Cash flow –120 −22 –13.26 25.54 NPV (at r = 10%) = 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 10%. (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.)
Use the cash flows and competitive spreads shown in the table below.
| ($ millions) | ||||
| Year 0 | Year 1 | Year 2 | Years 3–10 | |
| Investment | 120 | |||
| Production (millions of pounds per year) | 0 | 0 | 42 | 82 |
| Spread ($ per pound) | .97 | .97 | .97 | .97 |
| Net revenues | 0 | 0 | 40.74 | 79.54 |
| Production costs | 0 | 0 | 32.00 | 32.00 |
| Transport | 0 | 0 | 0 | 0 |
| Other costs | 0 | 22 | 22 | 22 |
| Cash flow | –120 | −22 | –13.26 | 25.54 |
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
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Now compute the steady−state book rate of return (ROI) for a mature company producing polyzone. Assume no growth and competitive spreads. (as a %)(Negative answers should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
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