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Problem:

A mining company is considering a new project. Because the mine has received a permit, the project would be legal; but it would cause significant harm to a nearby river. The firm could spend an additional $10.33 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 $63 million, and the expected net cash inflows would be $21 million per year for 5 years. If the firm does invest in mitigation, the annual inflows would be $22 million. The risk adjusted WACC is 10%.

Required:

Question: Calculate the NPV and IRR with mitigation.

Note: Provide support for rationale.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91168057

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