11-9 CAPITAL BUDGETING CRITERIA: ETHICAL CONSIDERATIONS An electric utility is considering a new power plant in northern

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11-9 CAPITAL BUDGETING CRITERIA: ETHICAL
CONSIDERATIONS An electric utility is considering a new
power plant in northern Arizona. Power from the plant would be sold
in the Phoenix area, where it is badly needed. Because the firm has
received a permit, the plant would be legal, but it would cause
some air pollution. The company could spend an additional $40
million at Year 0 to mitigate the environmental problem, but it
would not be required to do so. The plant without mitigation would
cost $240 million, and the expected cash inflows would be $80
million per year for 5 years. If the firm does invest in
mitigation, the annual inflows would be $84 million. Unemployment
in the area where the plant would be built is high, and the plant
would provide about 350 good jobs. The risk-adjusted WACC is
17%.