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 indudes 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: (1) Simple Payback Period 18 marks] (1) Average Rate of Return; 17 marks] (I) Benefit Cost Ratio 17 marks] () Determine which of the alternative is acceptable to the company based on the above results. [3 marks] [Total 25 marks) Table 03: Revenue & Expenses in Million OMR Overhead Underground Items Cable Transmission Cable Transmission System System Initial Investment 9,037 13,793 (million OMR) 860 1020 Annual Revenue + cost savings (million OMR) Increases by 2% per Increases by 2% per year year First 10 years: First 10 years 276 Succeeding years: Succeeding years: 3% increase per year 1.5% increase per year 159 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 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 indudes 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: (1) Simple Payback Period 18 marks] (1) Average Rate of Return; 17 marks] (I) Benefit Cost Ratio 17 marks] () Determine which of the alternative is acceptable to the company based on the above results. [3 marks] [Total 25 marks) Table 03: Revenue & Expenses in Million OMR Overhead Underground Items Cable Transmission Cable Transmission System System Initial Investment 9,037 13,793 (million OMR) 860 1020 Annual Revenue + cost savings (million OMR) Increases by 2% per Increases by 2% per year year First 10 years: First 10 years 276 Succeeding years: Succeeding years: 3% increase per year 1.5% increase per year 159 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
