Answers
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 |
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