The Muscat Electric Company ventures to a new project in the eastern part of the capital city which is a 200-kilometer, 300 kV transmission lines. The company has to choose between an Overhead Cable Transmission System and Underground Cable Transmission System. Table Q3 shows the initial investment for each type, the expected revenues during its lifetime which includes the cost savings incurred by underground transmission system over the overhead transmission system. The company has estimated a salvage value for each type of transmission to be 5% of the initial investment. As a company cost of capital is 8% per year. Using the following techniques for capital investment appraisal, perform the following; (i) Simple Payback Period; (ii) Average Rate of Return; (iii) Benefit Cost Ratio; (iv) Determine which of the alternative is acceptable to the company based on the above results. Table Q3: Revenue & Expenses in Million OMR Overhead Underground Items Cable Transmission Cable Transmission System System Initial Investment (million OMR) 9,434 13,044 841 Annual Revenue + cost savings 1489 (million OMR) Increases by 2% per year Increases by 2% per year First 10 years: First 10 years: 219 Annual Operating & Maintenance O&M Cost (million OMR) 183 Succeeding years: Succeeding years: 3% increase per year 1.5% increase per year 10% of (Annual Revenue + cost savings) Annual taxes (million OMR) 10% of (Annual Revenue + cost savings) Life expectancy, years 50 40
The Muscat Electric Company ventures to a new project in the eastern part of the capital city which is a 200-kilometer, 300 kV transmission lines. The company has to choose between an Overhead Cable Transmission System and Underground Cable Transmission System. Table Q3 shows the initial investment for each type, the expected revenues during its lifetime which includes the cost savings incurred by underground transmission system over the overhead transmission system. The company has estimated a salvage value for each type of transmission to be 5% of the initial investment. As a company cost of capital is 8% per year. Using the following techniques for capital investment appraisal, perform the following; (i) Simple Payback Period; (ii) Average Rate of Return; (iii) Benefit Cost Ratio; (iv) Determine which of the alternative is acceptable to the company based on the above results. Table Q3: Revenue & Expenses in Million OMR Overhead Underground Items Cable Transmission Cable Transmission System System Initial Investment (million OMR) 9,434 13,044 841 Annual Revenue + cost savings 1489 (million OMR) Increases by 2% per year Increases by 2% per year First 10 years: First 10 years: 219 Annual Operating & Maintenance O&M Cost (million OMR) 183 Succeeding years: Succeeding years: 3% increase per year 1.5% increase per year 10% of (Annual Revenue + cost savings) Annual taxes (million OMR) 10% of (Annual Revenue + cost savings) Life expectancy, years 50 40
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
100%
I need step by step solution.
Transcribed Image Text:The Muscat Electric Company ventures to a new project in the eastern part of the capital city which
is a 200-kilometer, 300 kV transmission lines. The company has to choose between an Overhead
Cable Transmission System and Underground Cable Transmission System. Table Q3 shows the initial
investment for each type, the expected revenues during its lifetime which includes the cost savings
incurred by underground transmission system over the overhead transmission system. The company
has estimated a salvage value for each type of transmission to be 5% of the initial investment. As a
company cost of capital is 8% per year. Using the following techniques for capital investment
appraisal, perform the following;
(i) Simple Payback Period;
(ii) Average Rate of Return;
(iii) Benefit Cost Ratio;
(iv) Determine which of the alternative is acceptable to the
company based on the above results. Table Q3: Revenue & Expenses in Million OMR
Overhead
Underground
Items
Cable Transmission
Cable Transmission
System
System
Initial Investment (million OMR)
9,434
13,044
841
Annual Revenue + cost savings
1489
(million OMR)
Increases by 2% per year
Increases by 2% per year
First 10 years:
First 10 years:
219
Annual Operating &
Maintenance O&M Cost (million OMR)
183
Succeeding years:
Succeeding years:
3% increase per year
1.5% increase per year
10% of (Annual Revenue + cost savings)
10% of (Annual
Revenue + cost savings)
Annual taxes (million OMR)
Life expectancy, years
50
40
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 10 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