8. Problem 11.08 (Capital Budoeting Criteria: Ethical Conslderations) A mining company is considering a new project. Because the reine has received a permit, the project would be legal; but it neuld casse significant harm to a neacby fiver, The ferm could spend an additional $9 milion at vear 0 to mitigate the emitonmental problem, but it would not be requred to de so. Developing the minet mitioation, the annual inflions would be 318 million, The rlak-adjusted wacc is 12 the a. Calridate the NDV and IRQ with mitigation, Enter voer atiswer for NPV in millions. For exartile, an answer of $10,550,000 thould be entered as 10.55. Do rot round intemediate calculationt. Peund your antwers to two decimal idsces. NPPY 5 minsen IRR: Calculate the fNPV and thR without mitioation. Enter your aniwer tor APVin mallices, For example, an answer of 410,550,000 shocld be entered as 1055. Do not round intermedate calculations. Round your answers to two decimal flaces. ND:: 3 : million IRS: b. How shouls the eivironmentsl elfects be dealt weth when this project is evaluated? 1. The environmental effects if not mitigated could result in addeional less of cah flows andec fines and penalties due to at will amseng customers, community, etc. Therefore, even thoogh the mine is legal without mitigatiso, the company needs to make sure that ther have articipated al cots it the "no mitigation" analysis from not doing the enviconmental mitigation. II. The enveromental effects should be ionored since the mire is legal without midgation. 1i1. The envitonmertal effects should be treated as a sunk cost and therefore ignoeed. ne the envitonmerital effects if not mitigated would itesult in adsitional cash flaws. Therefere, since the mine is legal without mitigation, there are no. benefits to pericrining a "ne matgation" analysis. 4. The essiconmental efects sheuld be treated as a remote possiblity and should only be corcidered at the time in which ther actially occur. b. How should the emironmental effects be dealt with whon this project is evaluated? 1. The eevironmental effects if not mitigated could result in additional loss of cash flows andier fines and penalties due to ill will among customers, community, etc. Therefore; even though the mine is legal without mitioation, the company needs to make sure that they have antidpated all costs in the "no mitigation" analysis from not dolng the environnsental mitigation. 11. The emironmental elfects should be fonored since the mine is fegal without mitigation. III. The environmental effects should be treated as a sunk cost and therefore ignored. W. The environmental eftects if not mi tigated would result in additional cash flows. Therefore, since the mine is legal without mitigation, there are no benefits to performing a "no miligation" andlysis. V. The envircomental effects should be treated as a remote posshinity and should cnly be considered at the time in which they actually occur. c. Should this project be undertaken? If so, should the firm do the mitigation? 1. Under the assumption that all costs have been considered, the corapany would not mitigate for the emvironmental impact of the project since its IHR without mitigation is oreater than its IftR. when mitigation costs are included in the analysis. II. Under the assumption that all costs have been considered, the company would mitigate for the emvironmental insact of the project since its NaV witt mitigation 15 greater than its NPV when mitigation costs are not indiaded in the analysis. III. Under the assumption that all costs have been considered, the coenpany would not mitigate for the environmental impact of the project since its NPV without mitigation is greater than its NPV when mitigation costs are induded in the analysis. TV, Under the assumbtion that all costs have been considered, the company would mitigate for the efvironmental impact of the prolect since its tRR with mitigation is greater than its ing when mitigaticn costs are not included in the analysis. V. Under the assumption that alf costs have been coesidered, the company would not mitigate for the environmental impact of the project since its NPV with mitigation is greater than its NPV when mitigation costs are not included in the analysis