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@@@@@@@@@@@ will upvote!!! @@@@@@@@@@@@@ An established manufacturer is building a plant in Mexico and they are evaluating various flood control measures as they have seen

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An established manufacturer is building a plant in Mexico and they are evaluating various flood control measures as they have seen problems during construction that indicate they will have problems later. They're looking at at 4 options and tight on cash, they are looking at this analysis with an 22 % required return and a 15 year life. Which option would you recommend?

1. Full System - Has large water retention pond, sump pumps, generator for back up power. It will require CAPEX of $2,500,000, and require annual maintenance/testing of $15,000, but prevent damage from a 100 year flood, so we will assume No damage cost.

2. Partial System - Has a medium retention pond and sump pumps, but no back up generator. It will require CAPEX of $1,500,000, and require annual maintenance/OPEX of $10,000. There is a 5% chance (assume annually) that the plant will still have outages/damage from a major storm that could cost $3,500,000.

3. Minor System - Has a medium retention pond and no sump pumps, but no back up generator. It will cost $200,000, and require annual maintenance of $1,000. There is a 10% chance (asssume annually) that the plant will still have outages/damage from a major storm that could cost $3,800,000.

4. No System - There is a 15% chance (asssume annually) that the plant will still have outages/damage from a major storm that could cost $4,500,000.

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