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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 9%. (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.)

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.)

Use the cash flows and competitive spreads shown in the table below. ($ millions) Year 0 Year 1 Year 2 Years 3-10 150 Investment Production (millions of pounds per year) Spread ($ per pound) C C 56 96 1.11 1.11 1.11 1.11 Net revenues C C 62.16 106.56 Production costs 46.00 46.00 C C Transport Other costs C C 0 0 C 36 36 36 Cash flow -36 -150 -19.84 24.56 NPV (at 9%) 0 r = Assume the dividend payout ratio each year is 100% HO O O O Economic Book rate of Book income income ($ in millions) Period ($ in millions) return (%) 0 0 0 1 46.00 (25.56) 6.15 34.56 X 2 (21.33) 8.54 6.64X 10.30X 3 4.61 6.64(x 9.30 x 4 5.27 6.64 X 8.22 X 6.15 5 7.07 X 6 6.64 7.38 6.64 x 5.84 ( 7 9.22 12.30X 8 6.64 4.53 6.64(x 18.44 6.64 x 36.89 X 10 Use the cash flows and competitive spreads shown in the table below. ($ millions) Year 0 Year 1 Year 2 Years 3-10 150 Investment Production (millions of pounds per year) Spread ($ per pound) C C 56 96 1.11 1.11 1.11 1.11 Net revenues C C 62.16 106.56 Production costs 46.00 46.00 C C Transport Other costs C C 0 0 C 36 36 36 Cash flow -36 -150 -19.84 24.56 NPV (at 9%) 0 r = Assume the dividend payout ratio each year is 100% HO O O O Economic Book rate of Book income income ($ in millions) Period ($ in millions) return (%) 0 0 0 1 46.00 (25.56) 6.15 34.56 X 2 (21.33) 8.54 6.64X 10.30X 3 4.61 6.64(x 9.30 x 4 5.27 6.64 X 8.22 X 6.15 5 7.07 X 6 6.64 7.38 6.64 x 5.84 ( 7 9.22 12.30X 8 6.64 4.53 6.64(x 18.44 6.64 x 36.89 X 10

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