Question

1 Al Saifi brothers are in the business of manufacturing high quality Halwa and selling in Oman. The business is a family owned business run by five brothers. As there is increasing competition in the business with the entering of other brands entering the market, Al Saifi brothers are deeply concerned about the their business. Al Saifi is planning to set up retail outlet in other parts of Oman in partnership with other Omani entrepreneurs. They have come up with two proposals.

# Proposal -Salalah :

This is about setting up a retail outlet in Grand Mall Salalah. The amount of investment required at the beginning will be RO 10,000. The expected income on the investment is expected to be around 10% per year for the initial 3 years.

# Proposal – Barkha :

This is about setting up a retail outlet in Lulu Hypermarket in Barkha . The amount of investment required at the beginning will be RO 15000. The business expects to give an income of around 8% per year for the initial 4 years.

*You are required to calculate for the above two proposal:

a) The total expected income on the investment .

b) To calculate the future value of th investment.

Answer 1

a) Calculation of expected income on the investment

Under proposal Salalah

Investment RO 10000 (RO)

year	(a)Opening balance or Investment for calculation	(b) Income = (a) * 10%	(c) Cumulative for next year = (a+b)
1	10000	= 10000* 10% = 1000	11000
2	11000	= 11000* 10% = 1100	12100
3	12100	= 12100 * 10% = 1210	13310

Total income = 1000+1100+1210

= RO 3310

Under proposal Barkha

Investment RO 15000 (RO)

year	(a)Opening balance or Investment for calculation	(b) Income = (a) * 8%	(c) Cumulative for next year = (a+b)
1	15000	= 15000* 8% = 1200	16200
2	16200	= 16200* 8% = 1296	17496
3	17496	= 17496 * 8% = 1400	18896

4

18896

= 18896 * 8% = 1512

20408

Total Income = 1200+1296+1400+1512

= RO 5408

b) Calculation of Future value of investment

Under proposal Salalah  

Present value = 10000

n = number of years = 3 years

R = Rate of income expect = 10% ( i.e 0.10)

Future value = Present value * (1+R)^n

Future value = 10000 ( 1 + 0.10) ^ 3

= RO 13310

Under proposal Barkha  

Present value = 15000

n = number of years = 4 years

R = Rate of income expect = 8% ( i.e 0.08)

Future value = Present value * (1+R)^n

Future value = 15000 ( 1 + 0.08) ^ 4

= RO 20408