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Makkah Hyper market is a famous company for its various retail outlets of grocery items in Oman

Finance Jan 15, 2021

Makkah Hyper market is a famous company for its various retail outlets of grocery items in Oman. The company is planning to open a new outlet in Sohar. The initials costs including land, construction, installation and finishing is expected to be OMR 500,000. The information pertaining to expected annual revenues is given below: Year 1 ending : OMR 140000 Year 2 ending : OMR 170000 Year 3 ending : OMR 180000 Year 4 ending : OMR 210000 The expected costs for maintenance, staff salaries and miscellaneous expenses are OMR 110,000 each year. Applicable annual compounding interest rate is 8%. a) Based on the information given, draw a cash flow diagram. (01 Mark) b) Compute the equivalent net present worth of cash flows. (2.5 Marks) c) Compute the equivalent net future worth of cash flows at the end of 4 years. (2.5 Marks

Expert Solution

(a)

CASH OUTFLOW/INFLOW  
YEAR 0 -500000
YEAR 1 140000
YEAR 2 170000
YEAR 3 180000
YEAR 4 210000

(b)

present value of cash flows

CASH FLOWS   PV FACTOR @8% PV OF CASH FLOWS
YEAR 0 -500000   -500000
YEAR 1 140000 0.926 129629.63
YEAR 2 170000 0.857 145747.60
YEAR 3 180000 0.794 142889.80
YEAR 4 210000 0.735 154356.27

c)

CASH FLOWS   PV FACTOR @8% PV OF CASH FLOWS
YEAR 0 -500000   -500000
YEAR 1 140000 0.926 129629.63
YEAR 2 170000 0.857 145747.60
YEAR 3 180000 0.794 142889.80
YEAR 4 210000 0.735 154356.27
       
ROR 8.0% NPV = 72623.30

future worth of NPV = 72,623.3 x (1.08)^4

= 98,803.2

please appreciate the work

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