Sohar Metal Company is considering three proposals for long term investment. Due to limitation on capital, the company can accept only one out three projects. The following information is available relating to : Steel Aluminium Alloys Plant Plant Plant Initial investment (RO) Operating Profit before depreciation year 1 | Operating Profit before depreciation year 2 Operating Profit before depreciation year 3 | Operating Profit before depreciation year 4 Operating Profit before depreciation year 5 Scrap value at the end of 5 years (100,000) 60,000 50,000 40,000 30,000 25,000 10,000 (100,000) 50,000 50,000 40,000 30,000 30,000 5,000 (100,000) 54,000 46,000 40,000 36,000 25,000 10,000 The company's standard payback period is 2 years and standard ARR is 12%. The cost of capital is 10%? You are required to evaluate the above three projects based on following evaluation techniques: (i) (ii) (iii) (iv) (v) (vi) Accounting Rate of Return (ARR) Payback Period (PBP) Net Present Value (NPV) Profitability Index (PI) Internal Rate of Return (IRR) Recommend one best project to the Management of Sohar Metal Company for considering for investment. And justify why do you recommend that project for consideration? You are expected to use MS Excel spread sheet for all calculation and to presentation of results of all the three projects under the above-mentioned evaluation techniques.
Sohar Metal Company is considering three proposals for long term investment. Due to limitation on capital, the company can accept only one out three projects. The following information is available relating to : Steel Aluminium Alloys Plant Plant Plant Initial investment (RO) Operating Profit before depreciation year 1 | Operating Profit before depreciation year 2 Operating Profit before depreciation year 3 | Operating Profit before depreciation year 4 Operating Profit before depreciation year 5 Scrap value at the end of 5 years (100,000) 60,000 50,000 40,000 30,000 25,000 10,000 (100,000) 50,000 50,000 40,000 30,000 30,000 5,000 (100,000) 54,000 46,000 40,000 36,000 25,000 10,000 The company's standard payback period is 2 years and standard ARR is 12%. The cost of capital is 10%? You are required to evaluate the above three projects based on following evaluation techniques: (i) (ii) (iii) (iv) (v) (vi) Accounting Rate of Return (ARR) Payback Period (PBP) Net Present Value (NPV) Profitability Index (PI) Internal Rate of Return (IRR) Recommend one best project to the Management of Sohar Metal Company for considering for investment. And justify why do you recommend that project for consideration? You are expected to use MS Excel spread sheet for all calculation and to presentation of results of all the three projects under the above-mentioned evaluation techniques.
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
Related questions
Question
Kindly solve the last three questions: iv, v, vi only
Transcribed Image Text:Sohar Metal Company is considering three proposals for long term investment. Due to
limitation on capital, the company can accept only one out three projects. The following
information is available relating to :
Steel
Aluminium
Alloys
Plant
Plant
Plant
Initial investment (RO)
Operating Profit before depreciation year 1
| Operating Profit before depreciation year 2
Operating Profit before depreciation year 3
| Operating Profit before depreciation year 4
Operating Profit before depreciation year 5
Scrap value at the end of 5 years
(100,000)
60,000
50,000
40,000
30,000
25,000
10,000
(100,000)
50,000
50,000
40,000
30,000
30,000
5,000
(100,000)
54,000
46,000
40,000
36,000
25,000
10,000
The company's standard payback period is 2 years and standard ARR is 12%. The cost of capital
is 10%?
You are required to evaluate the above three projects based on following evaluation techniques:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
Accounting Rate of Return (ARR)
Payback Period (PBP)
Net Present Value (NPV)
Profitability Index (PI)
Internal Rate of Return (IRR)
Recommend one best project to the Management of Sohar Metal Company for
considering for investment. And justify why do you recommend that project for
consideration?
You are expected to use MS Excel spread sheet for all calculation and to presentation of results
of all the three projects under the above-mentioned evaluation techniques.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 4 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education