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Use the cash flows and competitive spreads shown in the table below. ($ millions) Year 1 Year 2 Years 3-10 Year o 130 a .98
Use the cash flows and competitive spreads shown in the table below. ($ millions) Year 1 Year 2 Years 3-10 Year o 130 a .98 .98 Investment Production (millions of pounds per year) Spread ($ per pound) Net revenues Production costs Transport Other costs 43 .98 42.14 33.00 83 .98 81.34 33.00 a 0 23 23 23 Cash flow -130 -23 -13.86 25.34 NPV (at r = 7%) = 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.) Period Book income ($ in Book rate of return millions) (%) Economic income ($ in millions) 0 1 2 3 4 5 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 % 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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