Assume you are a CFO of a company that is considering a new project. The project requires initial investment of $1 million and its WACC is 10%. Its expected annual cash flow is $150,000 per year into perpetuity. This project leaks some pollutant into a nearby stream, although the leak is small and within the legal limits. The company can completely seal the leak at an annual cost of $40,000, starting from the beginning.

NPV without sealing the leak = -1m + 150000/0.1 = -1m + 1.5m = $500,000.

NVP if sealing leak = -1m - 40,000+ (150,000-40,000)/0.1 = -1.04m + 1.1m = $60,000.

Will you undertake this project? Will you seal the leak or not?

state your reasons.