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Oman Aluminum Rolling Company LLC (OARC) was established in 2011 as a green field aluminum rolling mill plant at the Sohar Industrial Estate to produce

Oman Aluminum Rolling Company LLC (OARC) was established in 2011 as a green field aluminum rolling mill plant at the Sohar Industrial Estate to produce flat rolled aluminum products. The management of the company is considering investing in a new facility and the following cash flows are expected to result from the investment:

Project A

Year

Cash Outflow (OMR)

Cash Inflow (OMR)

1

350,000

100,000

2

1,050,000

200,000

3

50,000

130,000

4

160,000

5

130,000

6

400,000

7

240,000

8

200,000

9

210,000

10

210,000

Project B

Year

Cash Outflow (OMR)

Cash Inflow (OMR)

1

1,450,000

150,000

2

250,000

3

150,000

4

260,000

5

230,000

6

500,000

7

250,000

8

200,000

9

210,000

10

250,000

You have been recently appointed as the Accounts Officer of the company and requested to evaluate the performance of Project A and Project B based on traditional capital budgeting technique. Which one of these projects is performing better? Rationalize the project selected if any; through the analysis based on Payback Period Method. Do your analysis and evaluation of the projects change if cash flows for the 6th year change to OMR450,000? Justify your answer.

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