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Use the cash flows and competitive spreads shown in the table below. ($ millions) Year 0 Year 1 Year 2 Years 310 Investment 100 Production
Use the cash flows and competitive spreads shown in the table below. ($ millions) Year 0 Year 1 Year 2 Years 310 Investment 100 Production (millions of pounds per year) 0 0 40 80 Spread ($ per pound) 0.95 0.95 0.95 0.95 Net revenues 0 0 38 76 Production costs 0 0 30 30 Transport 0 0 0 0 Other costs 0 20 20 20 Cash flow 100 20 12 26 NPV (at r = 8%) = 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 8%. (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.) 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.) b-2. Now compute the steady-state book rate of return (ROI) for a mature company producing polyzone. Assume no growth and competitive spreads
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