Problem:
A mining company is considering a new project. The firm could spend an additional $10 million at Year 0 to mitigate the environmental problem, but it would not be required to do so. Developing the mine without mitigation would cost $60 million, and the expected net cash inflows would be $20 million per year for 5 years. If the company does invest in mitigation, the annual inflows would be $21 million. The risk adjusted WACC is 15%.
Required:
Question: Calculate the NPV with Mitigation.
Note: Provide support for your underlying principle.