The Project Options Option 1: Since the small island has been hurt by a downshift in tourism, we could help the economy

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The Project Options
Option 1: Since the small island has been hurt by a downshift in
tourism, we could help the
economy by providing a one-time “tax” for the pollution. This would
present an immediate
Carbon Offset of $15,000,000. I know some of the senior members of
the management would
like to use this as a marketing tool and know the money could be
used to help the local
government fund items that were cut because of previous missed tax
revenues from the lack
of tourism to the island.

Option 2: The powerplant could be shut down completely and we could
install a power cable
that runs from one of the other nearby islands that has a
powerplant. This powerplant will still produce just as much
pollution as the one on our island, but it is under a different
government
that does not care about air pollution. This would cost the cost
our company $1,000,000 at the
end of the year, $3,000,000 at the end of next year and $1,000,000
yearly thereafter for
maintenance.

Option 3: The powerplant can be retrofitted with scrubbers that can
reduce the pollution
emissions and make the powerplant green. The cost of this project
would be $7,500,000 at the
end of this year and $100,000 for the next 50-years for
maintenance.
Market Conditions
The current market conditions have a 12 percent market risk premium
on the powerplant with
the risk-free rate being 5-percent. The local government has a
fixed tax rate of 36 percent.
The current capital structure of the company is as follows:

 Debt – 7,000 outstanding bonds, at 7.5% coupon and 20 years to
maturity. These
bonds pay interest semiannually and quoted a price of 108 percent
of par.
 Common Stock -180,000 shares outstanding, selling for $50 per
share: Beta .90.
 Preferred Stock – 8,000 shares of 5.5 percent preferred stock
outstanding, currently
selling for $95.00 per share.
Answer this question:
a. Use the Net Present Value to document a comparison of the
different costs of projects that will lead to a green solution for
a local powerplant .