An electnc utility is monsidening a new power plant in northem Arizona. Power from the plant would be sold in the Phoenox area, whiefe it is bacly needed. Because the firm has received a permit, the plant would be legal; but it would caise tome air polution. The company could spend an additonal 340 mallion at Year 0 to mitigate the environmental problemb, bot it would not be required to do so. The plant without mitigation would require as mital outloy of $2.40.20 millon, and the expected cash intlows would be $80 millien per year for 5 years. If the firm does ittivest it misgation, the antexal infloms would be 485.22 milliens Unemployment in the asea where the plant would be busy is high, and the plant would provide about 350 good yobs. The riskadjuited WhCE n 19% thound be indicated by a minis sigh. Do not roand intermediate calcutatient. Hound your answers to tho decimal pilaces. Whis 5 mition IBIt: b. How should the envirommental elfiects be dealt wha when evaluating this project? L. If the ublity mitigates for the envitonmental effects, the project is not acceptable. Howerer, before the cormpany chooses to do the project without mitigation, it needs to make sure that any costs of "'Ill will' for not mitigating for the environmental effects have been considered in the original analysis. II. The environemental effects should be treated as a remote possibility and should only be considered at the time in which they actuslly occut. III. The envionmental effects if not mitogated would recult in additional cash flows. Therefore, sinec the plant a legal witheut mitigation, there are no benefies to performing. " "no mitigation" analysis. iv. The environmental eflects should be ignored since the plant is legal without mutigation. V. The ervisonmectal effects should be treated as a sunk cost and therelore ignored. c. Should this projoct be undertaken? 1. The praject showld be undertaber since the 1AR is positive under both the "matigation" and "no mubgation" assumptions. W The proyed should be undettaken bivy under the "mitigation" aswamptosh