Answered step by step
Verified Expert Solution
Question
1 Approved Answer
please solve all parts!! thank you mining company is considering a new project. Because the mine has received a permit, the project would be legal;
please solve all parts!! thank you
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 rm could spend an additional $10.33 million at Year 0 to mitigate the environmental Problem, but it would not be required to do so. Developing the mine (without mitigabon). could require an initial outiay of $63 million, and the expected cash inflows would be $21 million per year for 5 years. If the firm does invest in mitigation, the annual inflows could be $22 million. The risk-adjusted WACC is 15%. a. Calculate the NPV and IRR with mitigation. Enter your answer for NPV in millions. For example, an answer of $10,550,000 should be entered as 10,55 . Do not round intermediate calculations. Hound your answers to two decimsl places. Calculate the NPV and IRR whout mitigation. Enter your answer for NPV in miltions. For example, an answer of $10,550,000 should be ontersed as 10.55 . Oo oot round intermediate calculations. Pound your answers to two decirfal places. b. How should the environmental effects be dealt with when this project is evaluated? 1. The environmental effects if not mitigated could result in additional loss of cash flows and/or fines and penaities due to if will among customers, community etc. Therefore, even though the mine is legal without mitigation, the company needs to make sure that they have anticipated all costs in the "no mitigation" analysis from not doing the environmental mitigation. 11. The environmental effects should be ignored since the mine is legal without mitigation. III. The environmental effects should be treated as a sunk cost and therefore ignored. IV. The environmental effects if not mitigated would result in additionat cash flows. Therefore; since the mine is legal wathout initigatian, there art no benefis to performing a "no mitigation" analysis. . The environmental effects should be treated as a remote possibility and should only be considered at the time in which they actualy occur. c. Should this project be undertaken? -Select- The project should not be undertaken under the "no mitigation" assumption. The project should be undertaken only under the "no mitigation" assumption. The project should not be undertaken under the "mitigation" assumption. Even when mitigation is considered the project has a positive NPV, so it should be undertaken. Even when mitigation is considered the project has a positive IRR, so it should be undertaken Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started