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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
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 $ million at Year to mitigate the environmental problem, but it would not be required to do so Developing the mine without mitigation would cost $ million, and the expected cash inflows would be $ million per year for years. If the firm does invest in mitigation, the annual inflows would be $ million. The riskadjusted WACC is
Calculate the NPV with and without mitigation.
How should the environmental effects be dealt with when this project is evaluated?
Should this project be undertaken? If so should the firm do the mitigation?
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