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Problem 12-16 Accounting measures of performance Use the cash flows and competitive spreads shown in the table below. ($ millions) Year 0 Year 1 Year

Problem 12-16 Accounting measures of performance

Use the cash flows and competitive spreads shown in the table below.

($ millions)
Year 0 Year 1 Year 2 Years 310
Investment 180
Production (millions of pounds per year) 0 0 59 99
Spread ($ per pound) 1.14 1.14 1.14 1.14
Net revenues 0 0 67.26 112.86
Production costs 0 0 49.00 49.00
Transport 0 0 0 0
Other costs 0 39 39 39
Cash flow 180 39 20.74 24.86
NPV (at r = 6%) = 0

Assume the dividend payout ratio each year is 100%. a. Calculate the yearbyyear book and economic profitability for investment in polyzone production. Assume straightline 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 Book Income($in Millions) Bookrateofreturn Economicincome($inMillion)
0
1
2
3
4
5
6
7
8
9

10

b1. What is the economic rate of return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

b2. Now compute the steadystate 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.)

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