Answered: A L0IN33 builder company is deciding…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

A L0IN33 builder company is deciding to undertake a pr0ject. The pr0ject is quite profitable as it will generate net cash inflows of $20 million per year for 5 years. However, it will cause pollution to the nearby residents. The company can mitigate this pollution by investing additional 10 million at Year 0 but legally it is n0t compulsory for it to do so. Undertaking this project would cost $60 million without mitigation. If the firm does invest in mitigati0n, the annual cash inflows would be $22 million. The risk adjusted WACC is 12%.

Calculate the NPV and IRR with and without mitigation
Should the project be undertaken? If so, should the firm do mitigation

Note: How to Find IRR(PV factor/Disount)

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