The smarter way
to do assignments.

Please note that this is just a preview of a school assignment posted on our website by one of our clients. If you need assistance with this question too, please click on the Order button at the bottom of the page to get started.

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, 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 environmental problem, but it would not be required to do so. 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 WACC is 17%.a. Calculate the NPV and IRR with and without mitigation.b. How should the environmental effects be dealt with when evaluating this project?c. Should this project be undertaken? If so, should the firm do the mitigation?
a. Calculating the NPV of plant With Mitigation Year Cash flows PV at 17% Net Present Value 0 -280000000 1 -28,00,00,000 1 8,40,00,000 0.855 7,17,94,872 2 8,40,00,000 0.731 6,13,63,138 3 8,40,00,000 0.624 5,24,47,127 4 8,40,00,000 0.534 4,48,26,604 5 8,40,00,000 0.456 3,83,13,337 -1,12,54,922 IRR of plant with mitigation Year Cash flows IRR 0 -280000000 1 8,40,00,000 15.24% 2 8,40,00,000 3 8,40,00,000 4 8,40,00,000 5 8,40,00,000 Calculating the NPV of plant without mitigation Year Cash flows PV at 17% Net Present Value 0 -240000000 1 -24,00,00,000 1 8,00,00,000 0.855 6,83,76,068 2 8,00,00,000 0.731 5,84,41,084 3 8,00,00,000 0.624 4,99,49,645 4 8,00,00,000 0.534 4,26,92,004 5 8,00,00,000 0.456 3,64,88,892…

1,59,47,693 IRR of plant without mitigation Year Cash flows IRR 0 -240000000 1 8,00,00,000 19.86% 2 8,00,00,000 3 8,00,00,000 4 8,00,00,000 5 8,00,00,000 b. Environment effects should be dealt with extreme care and it should be ensured that no damage is done to flora and fauna of the surroundings. c. As we can see that a project WITH MITIGATION gives a negative NPV, hence we should go with a plant with a positive NPV (project with NO MITIGATION)as it has a positive NPV.

## GET HELP WITH THIS ASSIGNMENT TODAY

Clicking on this button will take you to our custom assignment page. Here you can fill out all the additional details for this particular paper (grading rubric, academic style, number of sources etc), after which your paper will get assigned to a course-specific writer. If you have any issues/concerns, please don’t hesitate to contact our live support team or email us right away.