1 1 9 CAPITAL BUDGETING CRITERIA ETHICAL CONSIDERATIONS An electric utility is con sidering 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 $ 4 0 million at Year 0 to mitigate the environmental problem, but it would not be required to do so The plant without mitigation would require an initial outlay of $ 2 4 0 million, and the expected cash inflows would be $ 8 0 million per year for 5 years If the firm does invest in mitigation, the annual inflows would be $ 8 4 million Unemployment in the area where the plant would be built is high, and the plant would provide about 3 5 0 good jobs The risk adjusted WACC is 1 7 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 Why or why not 1 1 9 CAPITAL BUDGETING CRITERIA ETHICAL CONSIDERATIONS An electric utility is con sidering 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 $ 4 0 million at Year 0 to mitigate the environmental problem, but it would not be required to do so The plant without mitigation would require an initial outlay of $ 2 4 0 million, and the expected cash inflows would be $ 8 0 million per year for 5 years If the firm does invest in mitigation, the annual inflows would be $ 8 4 million Unemployment in the area where the plant would be built is high, and the plant would provide about 3 5 0 good jobs The risk adjusted WACC is 1 7 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 Why or why not

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1 1   9 CAPITAL BUDGETING CRITERIA  ETHICAL CONSIDERATIONS An electric utility is con   sidering 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 $ 4 0 million at Year 0 to mitigate the environmental problem, but it would not be required to do so   The plant without mitigation would require an initial outlay of $ 2 4 0 million, and the expected cash inflows would be $ 8 0 million per year for 5 years  If the firm does invest in mitigation, the annual inflows would be $ 8 4 million  Unemployment in the area where the plant would be built is high, and the plant would provide about 3 5 0 good jobs  The risk   adjusted WACC is 1 7     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  Why or why not  1 1   9 CAPITAL BUDGETING CRITERIA  ETHICAL CONSIDERATIONS An electric utility is con   sidering 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 $ 4 0 million at Year 0 to mitigate the environmental problem, but it would not be required to do so   The plant without mitigation would require an initial outlay of $ 2 4 0 million, and the expected cash inflows would be $ 8 0 million per year for 5 years  If the firm does invest in mitigation, the annual inflows would be $ 8 4 million  Unemployment in the area where the plant would be built is high, and the plant would provide about 3 5 0 good jobs  The risk   adjusted WACC is 1 7     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  Why or why not

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1 1 - 9 CAPITAL BUDGETING CRITERIA: ETHICAL CONSIDERATIONS An electric utility is con - sidering a new power plant in northern Arizona. Power from

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