Problem 12-16 Accounting measures of performance Use the cash flows and competitive spreads shown in the table below. ($ millions) Year 1 Year 0 Year 2 Years 3-10 Investment Production (millions of pounds per year) Spread (S per pound) Net revenues 120 0 0 53 93 1.08 1.08 1.08 57.24 1,08 0 0 0 100.44 Production costs Transport Other costs 0 0 43.00 43.00 0 0 33 0 0 33 33 Cash flow -33 -120 -18.76 24.44 NPV (at r 78) 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 7 %. (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.) Economic Book incoma (S in Ronk rate of raturn 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 7 %. (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.) Economic income (S in millions) Book income ($ in Book rate of return millions) Period (%) 0 0 0 1 2 3 4 6 7 8 9 10 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 8.00 % 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 Problem 12-16 Accounting measures of performance Use the cash flows and competitive spreads shown in the table below. ($ millions) Year 1 Year 0 Year 2 Years 3-10 Investment Production (millions of pounds per year) Spread (S per pound) Net revenues 120 0 0 53 93 1.08 1.08 1.08 57.24 1,08 0 0 0 100.44 Production costs Transport Other costs 0 0 43.00 43.00 0 0 33 0 0 33 33 Cash flow -33 -120 -18.76 24.44 NPV (at r 78) 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 7 %. (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.) Economic Book incoma (S in Ronk rate of raturn 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 7 %. (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.) Economic income (S in millions) Book income ($ in Book rate of return millions) Period (%) 0 0 0 1 2 3 4 6 7 8 9 10 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 8.00 % 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
