Use the cash flows and competitive spreads shown in the table given below for a

Question

Use the cash flows and competitive spreads shown in the table given below for a proposed investment in polyzone production by a U.S. chemical company and assume straight-line depreciation over 10 years and a cost of capital of 6%.

  

  NPV (at r = 6%) = 0

What is the BOOK RATE OF RETURN & ECONOMIC INCOME

($ millions) Year 0 Year 1 Year 2 Years 3–10   Investment 190           Production, millions of pounds per year 0         0         49         89           Spread, $ per pound 1.04         1.04         1.04         1.04           Net revenues 0         0         50.96         92.56           Production costs 0         0         39         39           Transport 0         0         0         0           Other costs 0         29         29         29           Cash flow –190         –29         –17.04         +24.56        

  NPV (at r = 6%) = 0

What is the BOOK RATE OF RETURN & ECONOMIC INCOME

Explanation / Answer

Answer: calculation of the book rate of return & economic income:

Cash flow time P.V.F (6%) P.V ($) -190 0 1 -190 -29 1 0.9433 -27.3557 -17.04 2 0.8899 -15.1639 24.56 3-10- 5.5267 135.7358 N.P.V -96.7838

Related Questions

Navigate

• Browse (All)
• Browse U
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.