16. Problem 11.09 (Capital Budgeting Criterla: Ethical Considerations) ED eBook A-Z An electric utility is considering a new power plant in northern Arizona. Power from the plant would be sold in the Phoenix area, where 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 millon at Year O to mitigate the environmental problem, but it would not be required to do so. The plant without mitigation would require an initial outlay of $240.31 million, and the expected cash Inflows would be 580 million per year for 5 years. If the firm does invest in mitigation, the annual Infiows would be $84.77 million. Unemployment in the area where the plant would be built in high, and the plant would provide about 350 good jobs. The risk adjusted WACC is 18%. a. Calculate the NPV and IRR with milgatlon. Enter your answer for NPV in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative values, if any, should be Indicated by a minus sign. Do not round Intermediate calculations. Round your answers to two decimal places 6 NPV: $ million IRR: Calculate the NPV and IRR without mitigation. Enter your answer for NPV in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negale values, if any, should be indicated by a minus sign. Do not round Intermediate calculations. Round your answers to two decimal places NPV:$ million IRR: b. How should the environmental effects bt deal with when evaluating this project? 1. The erwironmental effects should be ignored since the plant is legal without mitigation IL The environmental effects should be treated as a sunk cost and therefore ignored. m. the eliny mitigates for the environmental effects, the project is not acceptable. However, before the company chooses to do the project without mitigation, needs to make sure that any costs of " wir for not mitigating for the environmental effects have been considered in the original analysis 1. The environmental effects should be treated meremete pobility and should only be considered at the time in which they actually occur The environmental effects moderosted would reset nadditional comh flow. Therefore, wince the plant is legal without mitigation, are benefits to performing a mitigation Should this project be undertaken? The project should be undertaken only under the mitigation aumption 11. The project should be undertaken since the BR is positive under both the mitigation and to gain assumption II. The Begunct should be undertaken since the NPV is positive under both the mitigation and no mitigation assumption IV. Even when no mitigation is considered the project has a negative NPV, so it should not be undertaken The project should be undertaken only they do not mitigate for the environmental effects. However they have to make sure that tey ve done the analysis properly to avoid any well and additional costs that might relut from undertaking the project without concern for the environmental impacts S Grade it Now Save & Continue Continue without saving MacBook Pro * 30 88 A * $ 4 % 5 & 7 1 0 6 9 des 8 R U Y E 1 o P D F G H >