Calculate the NPV and IRR with and without mitigation

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Question - Tee Em Berhad (TNB) is an electric utility company is considering a new power plant in Kelantan. Power from the plant would be sold in the Johor area, where it is badly needed. The firm has received a permit, so the plant would be legal, but it would cause some air pollution near the plant. TMB has two options. First, the company could spend an additional $80 million at Year 0 to mitigate the environmental problem, but it would not be required to do so. Another options is the plant without mitigation would cost $240 million, and the expected net cash inflows would be $80 million per 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 cost of capital for this project (WACC) is 17 percent.

Required -

A. Calculate the NPV and IRR with and without mitigation of pollution?

B. Should this project be undertaken referring to NPV and IRR value? If so, should the firm do the mitigation?

Reference no: EM132842533

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