considering a new project. Because the mine has received a permit, the project would belegal; but it would cause significant harm to a nearby river. The firm could spend anadditional $10 million at Year 0 to mitigate the environmental problem, but it would not berequired 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 firm does investin mitigation, the annual inflows would be $21 million. The risk-adjusted WACC is 12%.
a. Calculate the NPV and IRR with and without mitigation.