Question

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Problems and Investments Ch 12 i) Saved Help Sav You received partial credit in the previous attempt 20 Check my work View Year e Years 3-10 Year 1 Year 2 Investment 120 Production (millions of pounds per year) Spread ($ per pound) Net revenues Production costs Transport Other costs 82 42 .97 .97 97 40,74 79.54 32.00 32.00 22 22 22 25.54 -13.26 Cash flow -120 -22 1742 NPV (at r -18% ) -0 ok Assume the dividend payout ratio each year is 100% nces 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 indiceted by a minus sign. Leave no cells blam - be certoin to enter "O" wherever required. Do not round intermediate colculations. Enter your income onswers in millions rounded to 2 decimal places and enter the rate of return as a percent rounded to 2 decimal places.) Economic income ($ in millions) Book income (S in Book rate of return millions) Period (%) Next > KPrey 4 of 8 web and Windows 8

Answer 1

Following is the working of profitability of Investment in polyzone productions.

Period	Workings		Book Income	Book Rate of return %	Econimic Income ($ in millions)
		Mlns of Pound per Year
	Investments	120.00
Year 1	Net Revenue	0.00
	Less: Production Cost	0.00
	Less: Depriciation	12.00	(Assuming All investment is in Depreciable Assets)
	Less: Transport	0.00
	Less: Other Costs	22.00
	Total Cost	34.00
	Net Income	-34.00	-34.00	-28.3%
	Less:
	Cost of Capital 12% of 120	14.40
	Economic Income	-48.40			-48.40
Year 2	Investments	120.00
	Net Revenue	40.74
	Less: Production Cost	32.00
	Less: Depriciation	12.00	(Assuming All investment is in Depreciable Assets)
	Less: Transport	0.00
	Less: Other Costs	22.00
	Total Cost	66.00
	Net Income	-25.26	-25.26	-21.1%
	Less:
	Cost of Capital 12% of 120	14.40
	Economic Income	-39.66			-39.66
Year 3 - 10	Investments	120.00
	Net Revenue	79.54
	Less: Production Cost	32.00
	Less: Depriciation	12.00	(Assuming All investment is in Depreciable Assets)
	Less: Transport	0.00
	Less: Other Costs	22.00
	Total Cost	66.00
	Net Income	13.54	13.54	11.3%
	Less:
	Cost of Capital 12% of 120	14.40
	Economic Income	-0.86			-0.86