SANeR (Sarah, Adam, Ne, and Ryan) enterprises are contemplating how to react to California regulations regarding their proposed oil refinery in Redwood City. They face two epsilons. 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, SANER would have to pay a penalty of $15M per year after taxes. Under Option B. the initial 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 $75 and the price that SANER could charge customers would be raised to $200 per barrel. Lastly, there would not be the annual $ 15M imposed by the Stable 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 deprecation purposes, straight-line deprecation 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 Sarah, Adam Nic, and Ryan choose that would maximize SANER's financial value? How did the California penalty ($ 15 M annually) affect your recommendation? Please support your recommendation with a Net Present Value calculation using discount cash flow analysis. (A suggestion keep your answers in the don't get wrapped up around at the zeros; also you may want to took at 3-33 and 3-35 as this problem is a blend between the two)