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The Oman National Grid Company ventures to a new project in the southern part of the...

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Statistics

The Oman National Grid Company ventures to a new project in thesouthern part of the Sultanate which is a 250-kilometer, 132kilovolts transmission lines. The company has to choose between anOverhead transmission system and Underground transmission system.Table Q2 shows the initial investment for each type, the expectedrevenues during its lifetime which includes the cost savingsincurred by underground transmission system over the overheadtransmission system. The company has estimated a salvage value foreach type of transmission to be 5% of the initial investment. As acompany policy the minimum attractive rate of return MARR is 8% peryear. Determine which of the two alternatives is acceptable to thecompany using the following methods; (i) Simple payback period; [7](ii) Benefit cost ratio; [6] (ii) Net present value NPV; [6] (iii)Internal rate of return IRR

ItemsOverheadUnderground Transmission
TransmissionSystem
System
Initial Investment9,99311,722
(million OMR)
Annual revenue + cost savings9801238
(million OMR)
Annual Operating & Maintenance O&M Cost/Depreciation/256181
taxes
(million OMR)
Life expectancy, n4030
(years)

Answer & Explanation Solved by verified expert
3.6 Ratings (549 Votes)
Method Preferred System Payback Method Underground Transmission CostBenefit Ratio Overhead System NPV Overhead System IRR Underground Transmission 1Simple Payback Period Solution Choose Underground Transmission Explanation Items Overhead System Underground Transmission Initial Investment C 9993 11722 Annual revenue cost savings 980 1238 Annual Operating Maintenance OM CostDepreciationtaxes 256 181 Net Cash Inflowyear A 724 1057 Life expectancy n years 40 30 Salvage Value S 49965 5861 Items Overhead System Underground Transmission Cash Outlays Cumulative Cash    See Answer
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