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Write a note on risk and return in investment decisions od 1. Shams company is considering two projects. Each requires an initial investment of OMR 350,000. The company cost of capital is 12%. The cash inflows associated with each project are as follows: Cash inflows Year Project A Project B 1 150,000 130,000 2 120,000 100,000 B 90,000 80,000 1 90,000 a. b. 100,000 50,000 40,000 Calculate each project's payback period. (2 marks) Calculate the NPV for each project. (4 marks) Which project you would recommend to the management. Explain why. (2 marks) 2 XYZ Company is considering an investment proposal which requires an initial investment of OMR 500,000. The project has 5 years useful life and an estimated scrap value of OMR 40,000. Estimated profit after tax and depreciation are OMR 200,000, OMR 120,000, OMR 120,000, OMR 80,000, and OMR 90,000 at the end of year 1, 2, 3, 4 and 5 respectively. Advice XYZ Company whether the project is good for investment, using ARR technique if the minimum expected rate of return is 15%. (2 marks) c. From the following information extracted from the Balance Sheet of XYZ Company, you are required to calculate a. Leverage ratios for 2018 and 2019. (4 marks) b. Using your results from (a), comment on the solvency of the company. (1 mark) Particulars 2018 2019 OMR OMR 12.900 10,500 760,000 50,000 700,000 55,000 30,088 31,950 800,000 800.000 Cash and bank balances Property, plant and equipment Short-term bank borrowings Trade and other receivables |8% Debentures Inventories Vehicles Share capital Trade and other payable 10 years bank loan 28.900 150,000 12,500,000 14,100 500.000 28,400 130,000 2,500,000 18.300 480.000