Joey Hernandez was reprimanded by the home office for recommending a pollution abatement project because the project did not meet the standard financial criterion of an 8 percent rate of return. However, Hernandez had concluded that the $ 950,000 piece of equipment was necessary to prevent small amounts of arsenic from seeping into the city’s water system. No EPA warnings have been issued to the company.
a. Discuss the company requirement of an 8 percent rate of return on all projects.
b. What might be the ultimate consequence to Hernandez’s employer if it fails to pre-vent future arsenic seepage into the water system?
c. How should Hernandez justify the purchase of the equipment to the home office?