Question 3: 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: Simple Payback Period [8 marks] Average Rate of Return; [7 marks) ) Benefit Cost Ratio [7 marks] (iv) Determine which of the alternative is acceptable to the company based on the above results. [3 marks! Table 03: Revenue & Expenses in Million OMR Overhead Underground Items Cable Transmission Cable Transmission System System Initial Investment 9,804 12,833 (milion OMR) 1143 863 Annual Revenue + cost savings (milion OMR) Increases by 2% per year First 10 years 295 Annual Operating & Succeeding years: Maintenance O&M Cost (million OMR) 3% increase per year Increases by 2% per year First 10 years: 156 Succeeding years: 1.5% increase per year Annual taxes (milion OMR) 10% of Annual Revenue + cost savings) 10% of Annual Revenue + cost savings) Life expectancy, years 50 40 Question 3: 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: Simple Payback Period [8 marks] Average Rate of Return; [7 marks) ) Benefit Cost Ratio [7 marks] (iv) Determine which of the alternative is acceptable to the company based on the above results. [3 marks! Table 03: Revenue & Expenses in Million OMR Overhead Underground Items Cable Transmission Cable Transmission System System Initial Investment 9,804 12,833 (milion OMR) 1143 863 Annual Revenue + cost savings (milion OMR) Increases by 2% per year First 10 years 295 Annual Operating & Succeeding years: Maintenance O&M Cost (million OMR) 3% increase per year Increases by 2% per year First 10 years: 156 Succeeding years: 1.5% increase per year Annual taxes (milion OMR) 10% of Annual Revenue + cost savings) 10% of Annual Revenue + cost savings) Life expectancy, years 50 40