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Use the cash flows and competitive spreads shown in the table below. ($ millions) Year 0 Year 1 Year 2 Years 3-10 Investment 140
Use the cash flows and competitive spreads shown in the table below. ($ millions) Year 0 Year 1 Year 2 Years 3-10 Investment 140 Production (millions of pounds per year) Spread ($ per pound) 44 84 .99 . 99 .99 .99 Net revenues 43.56 83.16 Production costs 34.00 34.00 Transport Other costs 24 24 24 Cash flow -140 -24 -14.44 25.16 NPV (at r = 68) = 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 "O" 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.) * 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. Assume no growth and competitive spreads. (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.) ROI %
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