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Sohar Metal Company is considering three proposals for long term investment. Due to limitation on capital, the company can accept only one out three projects. The following information is available relating to : Steel Aluminium Alloys Plant Plant Plant Initial investment (RO) Operating Profit before depreciation year 1 | Operating Profit before depreciation year 2 Operating Profit before depreciation year 3 | Operating Profit before depreciation year 4 Operating Profit before depreciation year 5 Scrap value at the end of 5 years (100,000) 60,000 50,000 40,000 30,000 25,000 10,000 (100,000) 50,000 50,000 40,000 30,000 30,000 5,000 (100,000) 54,000 46,000 40,000 36,000 25,000 10,000 The company's standard payback period is 2 years and standard ARR is 12%. The cost of capital is 10%? You are required to evaluate the above three projects based on following evaluation techniques: (i) (ii) (iii) (iv) (v) (vi) Accounting Rate of Return (ARR) Payback Period (PBP) Net Present Value (NPV) Profitability Index (PI) Internal Rate of Return (IRR) Recommend one best project to the Management of Sohar Metal Company for considering for investment. And justify why do you recommend that project for consideration? You are expected to use MS Excel spread sheet for all calculation and to presentation of results of all the three projects under the above-mentioned evaluation techniques.

Sohar Metal Company is considering three proposals for long term investment. Due to limitation on capital, the company can accept only one out three projects. The following information is available relating to : Steel Aluminium Alloys Plant Plant Plant Initial investment (RO) Operating Profit before depreciation year 1 | Operating Profit before depreciation year 2 Operating Profit before depreciation year 3 | Operating Profit before depreciation year 4 Operating Profit before depreciation year 5 Scrap value at the end of 5 years (100,000) 60,000 50,000 40,000 30,000 25,000 10,000 (100,000) 50,000 50,000 40,000 30,000 30,000 5,000 (100,000) 54,000 46,000 40,000 36,000 25,000 10,000 The company's standard payback period is 2 years and standard ARR is 12%. The cost of capital is 10%? You are required to evaluate the above three projects based on following evaluation techniques: (i) (ii) (iii) (iv) (v) (vi) Accounting Rate of Return (ARR) Payback Period (PBP) Net Present Value (NPV) Profitability Index (PI) Internal Rate of Return (IRR) Recommend one best project to the Management of Sohar Metal Company for considering for investment. And justify why do you recommend that project for consideration? You are expected to use MS Excel spread sheet for all calculation and to presentation of results of all the three projects under the above-mentioned evaluation techniques.

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 10E: Roberts Company is considering an investment in equipment that is capable of producing more...
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Kindly solve the last three questions: iv, v, vi only

 

Sohar Metal Company is considering three proposals for long term investment. Due to limitation on capital, the company can accept only one out three projects. The following information is available relating to : Steel Aluminium Alloys Plant Plant Plant Initial investment (RO) Operating Profit before depreciation year 1 | Operating Profit before depreciation year 2 Operating Profit before depreciation year 3 | Operating Profit before depreciation year 4 Operating Profit before depreciation year 5 Scrap value at the end of 5 years (100,000) 60,000 50,000 40,000 30,000 25,000 10,000 (100,000) 50,000 50,000 40,000 30,000 30,000 5,000 (100,000) 54,000 46,000 40,000 36,000 25,000 10,000 The company's standard payback period is 2 years and standard ARR is 12%. The cost of capital is 10%? You are required to evaluate the above three projects based on following evaluation techniques: (i) (ii) (iii) (iv) (v) (vi) Accounting Rate of Return (ARR) Payback Period (PBP) Net Present Value (NPV) Profitability Index (PI) Internal Rate of Return (IRR) Recommend one best project to the Management of Sohar Metal Company for considering for investment. And justify why do you recommend that project for consideration? You are expected to use MS Excel spread sheet for all calculation and to presentation of results of all the three projects under the above-mentioned evaluation techniques.
Transcribed Image Text:Sohar Metal Company is considering three proposals for long term investment. Due to limitation on capital, the company can accept only one out three projects. The following information is available relating to : Steel Aluminium Alloys Plant Plant Plant Initial investment (RO) Operating Profit before depreciation year 1 | Operating Profit before depreciation year 2 Operating Profit before depreciation year 3 | Operating Profit before depreciation year 4 Operating Profit before depreciation year 5 Scrap value at the end of 5 years (100,000) 60,000 50,000 40,000 30,000 25,000 10,000 (100,000) 50,000 50,000 40,000 30,000 30,000 5,000 (100,000) 54,000 46,000 40,000 36,000 25,000 10,000 The company's standard payback period is 2 years and standard ARR is 12%. The cost of capital is 10%? You are required to evaluate the above three projects based on following evaluation techniques: (i) (ii) (iii) (iv) (v) (vi) Accounting Rate of Return (ARR) Payback Period (PBP) Net Present Value (NPV) Profitability Index (PI) Internal Rate of Return (IRR) Recommend one best project to the Management of Sohar Metal Company for considering for investment. And justify why do you recommend that project for consideration? You are expected to use MS Excel spread sheet for all calculation and to presentation of results of all the three projects under the above-mentioned evaluation techniques.
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