Go to the live Excel spreadsheets versions of Tables (a, b and c) at www.mhhe.com/bma. Reevaluate the

Go to the “live” Excel spreadsheets versions of Tables (a, b and c) at www.mhhe.com/bma. Reevaluate the NPV of the proposed polyzone project under each of the following assumptions. What’s the right management decision in each case?

a. Spread in year 4 holds at $1.20 per pound.

b. The U.S. chemical company can start up polyzone production at 40 million pounds in year 1 rather than year 2.

c. The U.S. company makes a technological advance that reduces its annual production costs to $25 million. Competitors’ production costs do not change.

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TABLE (a Investment Pocton, millions of pounds per year00 Spread, 5 per pound Net revenues Production costs Transport Other costs Cash flow Year 0 100 Year 1 Year 2 Years 3-10 4080 1.20 48 30 1.20 1.20 1.20 96 20 20 -100 NPV (at r 8%) S63.56 million TABLE (b) Year 2 YearO Tear Years 3-10 Investment 100 Production, millions of pounds per year Spread, S per pound Net revenues Production costs Transport Other costs Cash flow 480 95 95 38 30 95 95 0 0 0 0 -100 76 0 20 20 12 +26 NPV (at r = 896) = 0 TABLE (c) Investment Year O Year 1 Year 2 Year 3 Year 4 Years 5-10 100 Production, millions of pounds per year 004080 80 80 1.20 48 30 Spread, $ per pound Net revenues Production costs Transport Other costs Cash flow 1.20 0 0 0 0 1.20 0 0 1.20 1.10 0.95 76 30 96 30 20 20 -100 20 38 30 18 NPV (at r# 896) -9.8