Petroleum Development Oman (PDO), decided to start a capital project of extraction of crude oil in Dhofar region in 2022. The company has three alternatives to consider before starting the project. The project requires an initial investment of OMR 100,000 at the beginning of 2022. The estimated life of the project is 5 years. Assuming a discount rate of 10%, the estimated cash flows and the discount factors of the projects are as follows:

Year	Project I	Project II	Project III	Present Value of OMR 1 @ 10% discount
2022	20,000	25,000	15,000	0.909
2023	30,000	40,000	35,000	0.826
2024	40,000	70,000	50,000	0.751
2025	50,000	80,000	65,000	0.683
2026	70,000	90,000	80,000	0.621

Analyse the capital projects and answer the following questions:

Question 41

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Assume that PDO intends to invest OMR 100,000 in a 5 year loan with simple interest at 10% annually, instead of investing in the abovementioned projects. What will be the future value of its investment?

a.

201,136

b.

175,000

c.

150,000

d.

161,051

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Question 42

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Which project should be selected by PDO if it follows payback method of capital budgeting?

a.

Project II

b.

All the projects

c.

Project III

d.

Project I

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Question 43

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From the above given case, which project should be selected by PDO, if it adopts the modern method of capital budgeting?

a.

Project III

b.

All the projects

c.

Project II

d.

Project I

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Question 44

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What is the net present value of Project III?

a.

118,865

b.

74,170

c.

50,620

d.

100,000

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Question 45

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What is the present value of the cash flow from Project III in respect of the year 2022?

a.

24,780

b.

13,635

c.

30,040

d.

22,725

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Question 46

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The first step of Capital budgeting process is:

a.

Implementation

b.

Final Approval

c.

Evaluation of proposals

d.

Identification of Various Investments

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Question 47

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The Last step of Capital budgeting process is:

a.

Identification of Various Investments

b.

Evaluation of proposals

c.

Implementation

d.

Final Approval

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Question 48

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What is the present value of OMR 1,000, 5-year loan with 3% annually with compound interest?

a.

952

b.

4,348

c.

1,905

d.

863

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Question 49

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Khalid calculated payback period for two projects, project A is 4 years while project B is 4.5 years. Based on the scenario given which project Khalid should reject:

a.

Project A

b.

None of the cases will be rejected

c.

Both Project A and Project B

d.

Project B

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Question 50

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If interest amount is calculated as first year 300 OMR, second year 350 OMR years, and third year 400 OMR. Based on the scenario given, interest type is:

a.

None of the given options

b.

Simple Interest

c.

Simple and Compound Interest

d.

Compound Interest