Question
Q-1- An electric utility is considering a new power plant in Central Punjab. Power from the plant would be sold in the DG Khan area,
Q-1- An electric utility is considering a new power plant in Central Punjab. Power from the plant would be sold in the DG Khan area, where it is badly needed. Because the firm has received a permit, the plant would be legal; but it would cause some air pollution. The company could spend an additional PKR 40 million at Year 0 to mitigate the environmental problem. The plant without mitigation would cost PKR 240 million, and the expected net cash inflows would be PKR 80 million per year for 5 years. If the firm does invest in mitigation, the annual inflows would be PKR 84 million per year for 5 years. Unemployment in the area where the plant would be built is high, and the plant would provide about 350 good jobs. The risk-adjusted cost of Capital is 17%.
- Calculate the NPV with and without mitigation.
- Calculate the IRR with and without mitigation.
- Calculate the Payback Period with and without mitigation.
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