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An electric utility is considering a new power plant in norther Arizona. Power from the plant would be sold in the Phoenix area, where it is badly needed. Because the firm has received a permit, the plant would be legal; but it would cause some air pollution. The company could spend an additional $40 million at Year 0 to mitigate the envronmental problem, but it would not be required to do so. The plant without mitigation would cost $240 million, and the expected net cash flows would be $80 million pre year for 5 years. If the firm does invest in mitigation, the annual inflows would be $84 million. Unemployment in the area where the plant would be built is high, and the plant would provide about 350 good jobs. The risk-adjusted WACC is 17%
a. Calculate the NPV and IRR with and without mitigation
b. How should the environmental effects be dealt with when evaluation this project?
c. Should this project be undertaken? If so, should the firm do the mitigation?
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Grunewald Industries sells on terms of 2/10, net 30. Gross sales last year were $4,370,000, and accounts receivable averaged $462,000. Half of Grunewald's customers paid on the 10th day and took discounts. What are the nominal and effective costs of ..
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