The Muscat Electric Company ventures to a new project in the eastern part of the capital...
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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 Smple Payback Period, (1) Average Rate of Return, T) Benefit Cost Ratio (v) Determine which of the alternative is acceptable to the company based on the above results 18 marks] 7 marks] [7 marks] [3 marks] [Total 25 marks] Table Q3. Revenue & Expenses in Million OMR Overhead Cable Transmission System Underground Cable Transmission Items System Initial Investment 9,698 13,163 (million OMR) 895 1127 Annual Revenue + cost savings (milion OMR) Increases by 29% per year First 10 years Increases by 2% per year First 10 years 219 174 Annual Operating & Maintenance O&M Cost (million OMR) Succeeding years. 1.5% increase per year Succeeding years 3% increase per year 10% of (Annual Revenue + cost savings) 10% of (Annual Revenue + cost Annual taxes (milion OMR) savings) Lie 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 Smple Payback Period, (1) Average Rate of Return, T) Benefit Cost Ratio (v) Determine which of the alternative is acceptable to the company based on the above results 18 marks] 7 marks] [7 marks] [3 marks] [Total 25 marks] Table Q3. Revenue & Expenses in Million OMR Overhead Cable Transmission System Underground Cable Transmission Items System Initial Investment 9,698 13,163 (million OMR) 895 1127 Annual Revenue + cost savings (milion OMR) Increases by 29% per year First 10 years Increases by 2% per year First 10 years 219 174 Annual Operating & Maintenance O&M Cost (million OMR) Succeeding years. 1.5% increase per year Succeeding years 3% increase per year 10% of (Annual Revenue + cost savings) 10% of (Annual Revenue + cost Annual taxes (milion OMR) savings) Lie expectancy, years 50 40
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Overhead cable transmission system Simple payback period 9698 893779 13 973331 893779 1396 years displaystyle textARRfrac textAverage return during periodtextAverage investment where textAverage inves... View the full answer
Related Book For
Principles of heat transfer
ISBN: 978-0495667704
7th Edition
Authors: Frank Kreith, Raj M. Manglik, Mark S. Bohn
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