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Question 3: The Muscat Electric Company ventures to a new project in the eastem 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 03 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 averhead 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: i) Simple Payback Period: 8 marks) (ii) Average Rate of Return; [7 marks] (in) Benefit Cost Ratio. 17 marks (iv) Determine which of the altemative is acceptable to the company based on the above results [3 marks] [Total 25 marks) Table 03: Revenue & Expenses in Million OMR Overhead Underground Items Cable Transmission Cable Transmission System System Initial Investment 9,581 12,769 (million OMRI 849 1470 Annual Revenue - cost savings (million OMR) Increases by 2% per year Increases by 2% per year First 10 years First 10 years 290 164 Annual Operating & Maintenance O&M Cost (million OMRI Succeeding years. Succeeding years 3% increase per year 1.5% increase per year Annual taxes (million OMRI 10% of Annual Revenue + cost savings) 10% of (Annual Revenue + cost savings) Life expectancy years 50 40

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