A- A mining company is considering a new project. Because the mine has received a permit, the project would be legal; but it would cause significant harm to a nearby river. The firm could spend an additional $9.66 million at Year Oto mitigate the environmental Problem, but it would not be required to do so. Developing the mine (without mitigation) would require an initial outlay of $57 million, and the expected cash inflows would be $19 million per year for 5 years. If the firm does invest in mitigation, the annual inflows would be $20 million. The risk-adjusted WACC is 10% a. Calculate the NPV and IRR with mitigation Enter your answer for NPV in milions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round intermediate calculations, Round your answers to two decimal places NPV: $ million TRR: Calculate the NPV and RR without mitigation, Enter your answer for NPV in millions. For example, an answer of $10,550,000 should be entered 10.55. Do not round intermediate calculations. Round your answers to two decimal places NPV: million trial TRR a b. How should the environmental effects be dealt with when this project is evaluated? 1. The environmental effects not mited could result in additional loss of cash flows and/or fines and penalties due to ill will among customers, community, etc. Therefore, even though the mine is legal without mitigation, the company needs to make sure that they have anticipated al costs in the notion analysis from not doing the environmental mitigation II. The environmental effects should be ignored since the mine is legal without mitigation II. The environmental effects should be treated as a sunk cost and therefore ignored IV. The environmental effects not mitigated would result indtional cash flows. Therefore, we the mine is legal without mation, there are no benefits to performing ano mitigation analys V. The environment effects should be treated as a remote posibility and the only be considered at the time in which they actually scaun 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 company would not miste for the environmental impact of the project since IRR without million is greater than its IRR when itigation costs are included the analysis Under the assumption that all costs have been considered the company would mitigate for the environmental impact of the project since its NPV with mitigation Breater than it NV when mit are not included MacBook Air 1. The environmental effects if not mitigated could result in additional loss of cash flows and/or fines and penalties due to Ill will among customers, community, etc. Therefore, even though the mine is legal without mitigation, the company needs to make sure that they have anticipated all costs in the "no mitigation analysis from not doing the environmental mitigation 11. The environmental effects should be ignored since the mine is legal without mitigation. III. The environmental effects should be treated as a sunk cost and therefore ignored. IV. The environmental effects if not mitigated would result in additional cash flows. Therefore, since the mine Is legal without mitigation, there are no benefits to performing a "no mitigation analysis. V. The environmental effects should be treated as a remote possibility and should only be considered at the time in which they actually occur. 1-Select- c. Should this project be undertaken? -Select- If so, should the firm do the mitigation? 1. Under the assumption that all costs have been considered the company would not mitigate for the environmental impact of the project since its IRR without mitigation is greater than its IRR when mitigation costs are included in the analysis. 11. Under the assumption that all costs have been considered, the company would mitigate for the imental Impact of the project since its NPV with mitigation is greater than its NPV when mitigation costs are not included in the analysis III. Under the assumption that all costs have been considered, the company would not mitigate for the environmental Impact of the project since its NPV without mitigation is greater than its NPV when mitigation costs are included in the analysis. IV. Under the assumption that all costs have been considered, the company would mitigate for the environmental impact of the project since its IRR with mitigation is greater than its IRR when mitigation costs are not included in the analysis. V. Under the assumption that all costs have been considered, 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
