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Use the cash flows and competitive spreads shown in the table below. ($ millions) Year 1 Year 2 Year o 170 Years 3-10 1.02 Investment
Use the cash flows and competitive spreads shown in the table below. ($ millions) Year 1 Year 2 Year o 170 Years 3-10 1.02 Investment Production (millions of pounds per year) Spread ($ per pound) Net revenues Production costs Transport Other costs 1.02 a 0 47 1.02 47.94 37.00 87 1.02 88.74 37.00 a 0 0 27 27 27 Cash flow -170 -27 - 16.06 24.74 NPV (at r = 10%) = 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 10%. (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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