A mining company is considering a new project. Because the minehas received a permit, the project would be legal; but it wouldcause significant harm to a nearby river. The firm could spend anadditional $9.66 million at Year 0 to mitigate the environmentalProblem, but it would not be required to do so. Developing the mine(without mitigation) would cost $57 million, and the expected cashinflows would be $19 million per year for 5 years. If the firm doesinvest in mitigation, the annual inflows would be $20 million. Therisk-adjusted WACC is 10%.

1. Calculate the NPV and IRR with mitigation. Round your answers totwo decimal places. Do not round your intermediate calculations.Enter your answer for NPV in millions. For example, an answer of$10,550,000 should be entered as 10.55.
   NPV $ million
   IRR  %

   Calculate the NPV and IRR without mitigation. Round your answersto two decimal places. Do not round your intermediate calculations.Enter your answer for NPV in millions. For example, an answer of$10,550,000 should be entered as 10.55.
   NPV $ million
   IRR  %

2. How should the environmental effects be dealt with when thisproject is evaluated?

   1. The environmental effects if not mitigated could result inadditional loss of cash flows and/or fines and penalties due to illwill among customers, community, etc. Therefore, even though themine is legal without mitigation, the company needs to make surethat they have anticipated all costs in the "no mitigation"analysis from not doing the environmental mitigation.
   2. The environmental effects should be ignored since the mine islegal without mitigation.
   3. The environmental effects should be treated as a sunk cost andtherefore ignored.
   4. The environmental effects if not mitigated would result inadditional cash flows. Therefore, since the mine is legal withoutmitigation, there are no benefits to performing a "no mitigation"analysis.
   5. The environmental effects should be treated as a remotepossibility and should only be considered at the time in which theyactually occur.
   
   -Select-IIIIIIIVVItem 5

3. Should this project be undertaken?
   -Select-Even when mitigation is considered the project has apositive IRR, so it should be undertaken.The project should not beundertaken under the "no mitigation" assumption.The project shouldbe undertaken only under the "no mitigation" assumption.The projectshould not be undertaken under the "mitigation" assumption.Evenwhen mitigation is considered the project has a positive NPV, so itshould be undertaken.Item 6

   If so, should the firm do the mitigation?

   1. Under the assumption that all costs have been considered, thecompany would mitigate for the environmental impact of the projectsince its IRR with mitigation is greater than its IRR whenmitigation costs are not included in the analysis.
   2. Under the assumption that all costs have been considered, thecompany would not mitigate for the environmental impact of theproject since its NPV with mitigation is greater than its NPV whenmitigation costs are not included in the analysis.
   3. Under the assumption that all costs have been considered, thecompany would not mitigate for the environmental impact of theproject since its IRR without mitigation is greater than its IRRwhen mitigation costs are included in the analysis.
   4. Under the assumption that all costs have been considered, thecompany would mitigate for the environmental impact of the projectsince its NPV with mitigation is greater than its NPV whenmitigation costs are not included in the analysis.
   5. Under the assumption that all costs have been considered, thecompany would not mitigate for the environmental impact of theproject since its NPV without mitigation is greater than its NPVwhen mitigation costs are included in the analysis.