Chapter 11, Problem 9P

a.

Summary Introduction

To calculate: The NPV and IRR of the given project with and without mitigation.

Introduction:

Capital Budgeting:

It refers to the long term investment decisions that has been taken by the top management of a company and that are irreversible in nature. These decisions require investment of large amount of the company’s cash.

Net Present Value (NPV):

It is a method under capital budgeting which includes the calculation of net present value of the project in which the company is investing. The calculation is done by calculating the difference between the value of cash inflow and value of cash outflow after considering the discounted rate.

Internal Rate of Return (IRR):

It refers to the rate of return that is computed by the company to make a decision regarding the selection of a project for investment. This rate provides the basis for selection of projects with lower cost of capital and rejection of project with higher cost of capital.

b.

Summary Introduction

To identify:  The way in which the environmental effects should be dealt with when this project is evaluated.

c.

Summary Introduction

To explain: Whether the project should be undertaken or not with or without mitigation.