Question

An electric utility is considering a new power plant in northern Arizona. Power from the plant would be sold in the Phoenix 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 $40 million at Year 0 to mitigate the environmental problem, but it would not be required to do so. The plant without mitigation would require an initial outlay of $210.17 million, and the expected cash inflows would be $70 million per year for 5 years. If the firm does invest in mitigation, the annual inflows would be $75.34 million. Unemployment in the area where the plant would be built is high, and the plant would provide about 350 good jobs. The risk adjusted WACC is 18%.

1. Calculate the NPV and IRR with mitigation. Enter your 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 intermediate calculations. Round your answers to two decimal places.

   NPV: $ _million

   IRR: _%

   Calculate the NPV and IRR without mitigation. Enter your 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 intermediate calculations. Round your answers to two decimal places.

   NPV: $ _million

   IRR: _%

Answer 1

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C w ENG 10:52 31-07-2020 99+ 34 Х KO397 > . KO KP KQ KR KS KT KU KV KW KX KY KZ LA 397 398 399 ENVIRONMENT 400 401 a WITH MITIGATION WITHOUT MITIGATION 402 403 YEAR YEAR CF 0 CF -250.17 [210.17+40] 75.34 0 -210.17 1 1 70 2 70 2 3 75.34 75.34 3 70 4 4 70 75.34 75.34 5 5 70 404 405 406 407 408 409 410 411 412 413 414 415 416 417 WACC 18% WACC 18% NPV NPV -14.57 [=NPV(KQ411,KQ405:KQ409) +KQ404] 15.40% (=IRR(KQ404:KQ409)] 8.73 [=NPV(KW411,KW405:KW409) +KW404] 19.82% (=IRR(KW404:KW409)] IRR IRR 418 419 420 EAC MACRS RELEVANT Ml-np-ir BETA LEVERED NPV CCA REPLACEMENT BOND OPTION TO WAIT STEIN indiffEPS EBIT OCF 1 LEA ... +