Answered step by step
Verified Expert Solution
Question
1 Approved Answer
only need to solve the economic income part! Thank you in advance. Use the cash flows and competitive spreads shown in the table below. ($
only need to solve the economic income part! Thank you in advance.
Use the cash flows and competitive spreads shown in the table below. ($ millions) Year 1 Year 2 Years 3-10 44 Year 0 140 0 .99 0 0 0 0 Investment Production (millions of pounds per year) Spread ($ per pound) Net revenues Production costs Transport Other costs .99 0 .99 0 0 0 24 43.56 34.00 0 24 84 .99 83.16 34.00 0 24 Cash flow -140 24 -14.44 -25.16 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 ($) 0 -38 -28.44 11.16 11.16 11.16 Book rate of return (%) 0 -27.14 -22.57 9.96 11.39 13.29 Economic income ($) 0 9 Book income ($) Book rate of return (%) Economic income ($) 11.16 15.94 7 11.16 19.93 11.16 26.57 11.16 39.86 10 11.16 79.71 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 6 % 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 2.97%Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started