Question
An electric utility is considering a new power plant and has 2 options for investment. The company could spend an additional $30 million at Year
An electric utility is considering a new power plant and has 2 options for investment. The company could spend an additional $30 million at Year 0 to mitigate environmental problems and doing do would boost cash flows by $4 million for the next 5 years. The plant without mitigation would require an outlay of $250 million, and the expected cash inflows would be $80 million for the next 3 years following by 50 million for 2 years after that. The risk-adjusted WACC is 12%. If the utility does mitigate environmental problems, what is the change in the NPV?
-15.58 million -16.79 million -15.95 million -17.15 million -19.53 million
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