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 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 capilal investment appraisal, perform the following:

Simple Payback Period

Average Rate of Return

Benefit Cost Ratio;

Determine which of the alterative 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 Inibal Investment (million OMR) 9,820 12,925 853 1370 Annual Revenue + cost savings (milion OMR) Increases by 2% per increases by 2% per year year First 10 years: First 10 years: 184 Succeeding years: Succeeding years: 3% increase per year 1.5% increase per year 288 Annual Operating & Maintenance O&M Cost (million OMR) Annual taxes (million OMR) 10% of (Annual Revenue + cost savings) 10% of (Annual Revenue + cost savings) Life expectancy, years 50 40