NewWorld SAOG is planning to replace its old machine with a new model machine. The company can choose one from the two models available in the market( Model T or Model G) with an equal investment of OMR 510000. The additional cost of utilities of Model T and Model G are OMR120,000 and OMR160000 respectively. The old machine can be sold for OMR 95000. The earnings from Model T and Model G are expected to be : Year 1 2 3 4 5 Model T 200,000 140,000 190,000 190,000 230,000 Model G 170,000 190,000 90,000 110,000 75,000 The cost of capital is 9%. At the end of fifth year the machine T and Machine G can be sold for OMR 25,000 and OMR 35,000 respectively. You are required to suggest the best option from the options below Since Model T and Model G have negative NPV , both machines will be rejected Both Model G and Model T can be selected Only Model G has an positive NPV of OMR 213370 therefore Model G can be chosen Only Model T has an positive NPV of OMR 213370 therefore Model T can be chosen
NewWorld SAOG is planning to replace its old machine with a new model machine. The company can choose one from the two models available in the market( Model T or Model G) with an equal investment of OMR 510000. The additional cost of utilities of Model T and Model G are OMR120,000 and OMR160000 respectively. The old machine can be sold for OMR 95000. The earnings from Model T and Model G are expected to be : Year 1 2 3 4 5 Model T 200,000 140,000 190,000 190,000 230,000 Model G 170,000 190,000 90,000 110,000 75,000 The cost of capital is 9%. At the end of fifth year the machine T and Machine G can be sold for OMR 25,000 and OMR 35,000 respectively. You are required to suggest the best option from the options below Since Model T and Model G have negative NPV , both machines will be rejected Both Model G and Model T can be selected Only Model G has an positive NPV of OMR 213370 therefore Model G can be chosen Only Model T has an positive NPV of OMR 213370 therefore Model T can be chosen
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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NewWorld SAOG is planning to replace its old machine with a new model machine. The company can choose one from the two models available in the market( Model T or Model G) with an equal investment of OMR 510000. The additional cost of utilities of Model T and Model G are OMR120,000 and OMR160000 respectively. The old machine can be sold for OMR 95000. The earnings from Model T and Model G are expected to be :
| Year | 1 | 2 | 3 | 4 | 5 |
| Model T | 200,000 | 140,000 | 190,000 | 190,000 | 230,000 |
| Model G | 170,000 | 190,000 | 90,000 | 110,000 | 75,000 |
The cost of capital is 9%. At the end of fifth year the machine T and Machine G can be sold for OMR 25,000 and OMR 35,000 respectively.
You are required to suggest the best option from the options below
Since Model T and Model G have negative
Both Model G and Model T can be selected
Only Model G has an positive NPV of OMR 213370 therefore Model G can be chosen
Only Model T has an positive NPV of OMR 213370 therefore Model T can be chosen
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