Problem 11-19 Economic rents

Consider the following information given below:

($ in millions except as noted)	Year 0		Year 1		Year 2		Year 3		Year 4		Year 5-10
Investment		100
Production (millions of pounds per year)		0		0		48		96		96		96
Spread ($ per pound)		1.28		1.28		1.28		1.28		1.28		1.03
Net revenues		0		0		61		123		123		99
Production costs		0		0		38		38		38		38
Transport		0		0		12		10		10		10
Other costs		0		28		28		28		28		28
Cash flow		100		28		16.56		46.88		46.88		22.88
NPV (at r = 10%) = 3.84

Production and transport costs are variable costs while other costs are fixed.

a. Calculate the NPV of the proposed polyzone project, if the spread in year 4 holds at $1.28 per pound and whats the right management decision? b. Calculate the NPV of the proposed polyzone project, if the U.S. chemical company can start up polyzone production at 48 million pounds in year 1 rather than year 2 and whats the right management decision? c. Calculate the NPV of the proposed polyzone project, if the U.S. company makes a technological advance that reduces its annual production costs to $33 million. Competitors production costs do not change and whats the right management decision?

Required A Required B Required C Calculate the NPV of the proposed polyzone project, if the U.S. company makes a technological advance that reduces its annual production costs to $33 million. Competitors' production costs do not change and what's the right management decision? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) Show less A Net present value millions Right management decision Required A Required B Required C Calculate the NPV of the proposed polyzone project, if the spread in year 4 holds at $1.28 per pound and what's the right management decision? (Do not round intermediate calculations. A negative answer should be indicated by a minus sign. Enter your answer in millions rounded to 2 decimal places.) Net present value Right management decision millions