a. Scenario 1 ArabScaff company has been in the business of fabricating modular scaffolding materials since 1990. The company is situated in Rusayl Industrial Estate and are the major suppliers of scaffolding materials in Oman. The present manufacturing facility has become old and is getting outdated, and the company wishes to replace the present facility with the most modern facilities in 11 years' time at an outlay of RO 50000. The company has two options to raise this fund. Option 1 The company can deposit an equal amount at the end of every year for the next 11 years which will earn an interest rate of 16%, which will be compounded annually. The company can use the growing fund for the investment purpose at the end of 11 years. Option 2 The company can utilize some part of its contingency reserve fund by investing a lump sum amount in a bond, for a period of 11 years. The bond will fetch an annual return of 15%, which will be compounded annually. The company can use the fund on maturity, after 11 years. Which of these two options would be better for the company if the company considers the cash flows in terms of its Present Worth? Justify your answer with proper explanations.

a. Scenario 1 ArabScaff company has been in the business of fabricating modular scaffolding materials since 1990. The company is situated in Rusayl Industrial Estate and are the major suppliers of scaffolding materials in Oman. The present manufacturing facility has become old and is getting outdated, and the company wishes to replace the present facility with the most modern facilities in 11 years' time at an outlay of RO 50000. The company has two options to raise this fund. Option 1 The company can deposit an equal amount at the end of every year for the next 11 years which will earn an interest rate of 16%, which will be compounded annually. The company can use the growing fund for the investment purpose at the end of 11 years. Option 2 The company can utilize some part of its contingency reserve fund by investing a lump sum amount in a bond, for a period of 11 years. The bond will fetch an annual return of 15%, which will be compounded annually. The company can use the fund on maturity, after 11 years. Which of these two options would be better for the company if the company considers the cash flows in terms of its Present Worth? Justify your answer with proper explanations.

Essentials of Business Analytics (MindTap Course List)

2nd Edition

ISBN:9781305627734

Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Chapter5: Probability: An Introduction To Modeling Uncertainty

Section: Chapter Questions

Problem 18P: The J.R. Ryland Computer Company is considering a plant expansion to enable the company to begin...

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