An electric utility is considering a new power plantin northern Arizona. Power from the plant would be sold in thePhoenix area, where it is badly needed. Because the firm hasreceived a permit, the plant would be legal; but it would causesome air pollution. The company could spend an additional $40million at Year 0 to mitigate the environmental problem, but itwould not be required to do so. The plant without mitigation wouldrequire an initial outlay of $209.80 million, and the expected cashinflows would be $70 million per year for 5 years. If the firm doesinvest in mitigation, the annual inflows would be $75.33 million.Unemployment in the area where the plant would be built is high,and the plant would provide about 350 good jobs. The risk adjustedWACC is 17%.
Calculate the NPV and IRR with mitigation. Enter youranswer for NPV in millions. For example, an answer of $10,550,000should be entered as 10.55. Negative values, if any, should beindicated by a minus sign. Do not round intermediate calculations.Round your answers to two decimal places.
NPV: $Â Â million
IRR: %
Calculate the NPV and IRR without mitigation. Enteryour answer for NPV in millions. For example, an answer of$10,550,000 should be entered as 10.55. Negative values, if any,should be indicated by a minus sign. Do not round intermediatecalculations. Round your answers to two decimal places.
NPV: $Â Â million
IRR: %
