Consider a plan to build a plant that will cost $225 million and generate cash flows of $70 million per year for the next 5 years. If the WACC is 13%, the net present value (NPV) of the plant project would be $21.21 million. However, the plant causes pollution and environmental damages that could be mitigated by spending $38 million upfront. This would cause the plant to generate cash flows each year of $76 million rather than $70 million and result in a net present value (NPV) of $4.31 million. However, the annual public health costs to the community will increase by $6 million per year if the plant is built without mitigation. If those externalities are factored in the NPV of the plant with mitigation becomes $25.41 million. If the pollution and environmental damages created by the plant do not exceed legal limits, what can we conclude about the plant project in a pure capitalist system?

A. The plant will open and choose not to mitigate the damages because this leads to the highest NPV for the owners.

B. The plant will open and choose to mitigate the damages because the NPV is still positive.

C. From an economic and societal point of view, there is a deadweight loss of $4.20 million.

D. Both a. and c. are correct.

E. Both b. and c. are correct.