Externality enterprises are contemplating how to react to California regulations regarding their proposed oil refinery in Redwood City. They face two options.Under option A, the initial investment would cost $0.8B ($800M) to build without fully meeting regulatory requirements.The unit price and variable cost per barrel of this product is estimated to be $150 and $100 respectively. While California would permit this facility to be built, Externality would have to pay a penalty of $15M per year after taxes. Under Option B, the initial outlay for the oil refinery would triple to $2.4 B ($2,400M).However, with the added cost, there would be improvements with regard to increased operating efficiencies and perceived quality. Estimates suggest that the variable cost per barrel of product would be reduced to $75 and the price that Externality could charge customers would be raised to $200 per barrel. Lastly, there would not be the annual $15M fee imposed by the State of California. Under both conditions, they would expect to produce and sell 5 million barrels per year.Additionally, the initial investment would be expected to have a useful life of 20 years, without any salvage value at the end of the 20 years; for depreciation purposes, straight-line depreciation would be used. The tax rate is 40% and the cost of capital is 16% for both options.Lastly, the pricing, variable costs and demand levels are estimated to be constant for the next 20 years. Which option should Externality choose that would maximize Externality's financial value?How did the California penalty ($15M annually) affect your recommendation? Please support your recommendation with a Net Present Value calculation using discounted cash flow analysis.