EXAMPLE 4 Matrah Manufacturing SAOG, is planning to replace its old machine with a new model machine. Company can choose one from the two models available in the market( Model X or Model Y) with an equal investment of OMR 600,000. The additional cost of utilities of Model X and Model Y are OMR 120,000 and OMR 160,000 respectively. The old machine can be sold for OMR 80,000. The earnings from Model X and Model Y are expected to be: Year Model X 2 3 5 190,000 130,000 200,000 200,000 140,000 Model Y 180,000 200,000 100,000 120,000 80,000 The cost of capital is 12%. At the end of fifth year the machine X and Machine Y can be sold for OMR 20,000 and OMR 30,000 respectively. You are required to suggest the best option. 22