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The management of Oman Investment Company is currently reviewing the company's investment alternatives for the coming year especially that the overall economic condition is constrained due to lockdown of COVID-19 pandemic and reduction in oil prices for many years. Based on economic reports, the likelihood that the recession period will continue is 30%, while the growing period is likely to occur with a probability of 40% given that the remaining expected period will be stable. The company has to choose between four mutually exclusive projects, the outcomes of which depend on the state of the economy. The following estimates have been made: State of Economy Recession Stable Project NPV (OMR) Project (A) Project (B) Project (C) Project (D) Growing NPV NPV (OMR) (OMR) 120,000 150,000 20,000 80,000 210,000 160000 100,000 140,000 190000 18,000 12,000 190,000 The Company also is evaluating project (F) in which it has the following cashflow: Initial Investment of OMR 70,000; variable cost of OMR 10,000 for three years; and cash inflow of OMR 5,000 p.a. These cash inflows arise from selling 1,000 units at OMR10 per unit. The expected risk adjusted rate is 10% while discount rate is 8%. The management of Oman Investment Company is currently reviewing the company's investment alternatives for the coming year especially that the overall economic condition is constrained due to lockdown of COVID-19 pandemic and reduction in oil prices for many years. Based on economic reports, the likelihood that the recession period will continue is 30%, while the growing period is likely to occur with a probability of 40% given that the remaining expected period will be stable. The company has to choose between four mutually exclusive projects, the outcomes of which depend on the state of the economy. The following estimates have been made: State of Economy Recession Stable Project NPV (OMR) Project (A) Project (B) Project (C) Project (D) Growing NPV NPV (OMR) (OMR) 120,000 150,000 20,000 80,000 210,000 160000 100,000 140,000 190000 18,000 12,000 190,000 The Company also is evaluating project (F) in which it has the following cashflow: Initial Investment of OMR 70,000; variable cost of OMR 10,000 for three years; and cash inflow of OMR 5,000 p.a. These cash inflows arise from selling 1,000 units at OMR10 per unit. The expected risk adjusted rate is 10% while discount rate is 8%.
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Related Book For
Fundamentals of Thermodynamics
ISBN: 978-0471152323
6th edition
Authors: Richard E. Sonntag, Claus Borgnakke, Gordon J. Van Wylen
Posted Date:
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