Calculate the NVP and IRR with and without mitigation

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Question - CAPITAL BUDGETING CRITERIA: ETHICAL CONSIDERATIONS: An electric utility is considering a new power plant in northern Arizona. Power from the plant would be sold in the Phoenix area, where it is badly needed. Because the firm has received a permit, it would be legal, but it would cause some air pollutions. The company could spend an additional $40 million at Year 0 to mitigate the environmental problem, but it would not be required to do so. The plant without mitigation could cost $240 million, and the expected cash 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%.

Required -

-Calculate the NVP and IRR with and without mitigation.

-How should the environmental effects be dealt with when evaluating the project?

-Should this project be undertaken? If so, should the firm do the mitigation? Why or why not?

Reference no: EM133060595

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