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: (0) Discounted payback period; marks] () Net present value NPV; [7 marks] (iii) Internal rate of return IRR. [7 marks] (iv) Determine which of the alternative is acceptable to the company based on the above results. [3 Table 03: Revenue & Expenses in Million OMR Overhead Underground Items Cable Transmission Cable Transmission System System Initial Investment 9,857 12,912 (million OMR) Annual Revenue + cost 857 1299 savings (million OMR) Increases by 2% per Increases by 2% per year year First 10 years: First 10 years: Annual Operating & 209 171 Maintenance O&M Cost Succeeding years: Succeeding years: (million OMR) 3% increase per year 1.5% increase per year Annual taxes million OMR) 10% of (Annual Revenue + cost savings) 10% of (Annual Revenue + cost savings) Life expectancy, years 50 40 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: (0) Discounted payback period; marks] () Net present value NPV; [7 marks] (iii) Internal rate of return IRR. [7 marks] (iv) Determine which of the alternative is acceptable to the company based on the above results. [3 Table 03: Revenue & Expenses in Million OMR Overhead Underground Items Cable Transmission Cable Transmission System System Initial Investment 9,857 12,912 (million OMR) Annual Revenue + cost 857 1299 savings (million OMR) Increases by 2% per Increases by 2% per year year First 10 years: First 10 years: Annual Operating & 209 171 Maintenance O&M Cost Succeeding years: Succeeding years: (million OMR) 3% increase per year 1.5% increase per year Annual taxes million OMR) 10% of (Annual Revenue + cost savings) 10% of (Annual Revenue + cost savings) Life expectancy, years 50 40
