Ethics Problem$$Diane Dennison is a financial analyst working for a large chain of discount retail stores. Her company is looking at the possibility of replacing the existing fluorescent lights in all of its stores with LED lights. The main advantage of making this switch is that the LED lights are much more efficient and cost less to operate. In$$ addition, LED lights last much longer and will have to be replaced after ten$$ years, whereas the existing lights have to be replaced after five years. Of$$ course, making this change will require a large investment to purchase new LED lights and to pay for the labor of switching out tens of thousands of bulbs. Diane plans to use a$10-$year horizon to analyze this$$ proposal, figuring that changes to lighting technology will eventually make this investment obsolete.

$$Diane$\text{'}$s friend and$$ coworker, David, has analyzed another$$ energy$-$saving investment opportunity that involves replacing outdoor lighting with$$ solar$-$powered fixtures in a few of the$$ company's stores. David also used a$10-$year horizon to conduct his analysis. Cash flow forecasts for each project are given here

Year LED project Solar project

$0-4,200,000-500,000$

$1710,00061,000$

$2710,00061,000$

$3710,00061,000$

$4710,00061,000$

$51,100,00061,000$

$6710,00061,000$

$7710,00061,000$

$8710,00061,000$

$9710,00061,000$

$10710,00061,000$

The company uses a$10\%$ discount rate to analyze capital budgeting proposals.

a$.$ What is the NPV of each$$ investment? Which investment$($if either$)$ should the company$$ undertake?

b$.$David approaches Diane for a favor. David says that the solar lighting project is a pet project of his$$ boss, and David really wants to get the project approved to curry favor with his boss. He suggests to Diane that they roll their two projects into a single proposal. The cash flows for this combined project would simply equal the sum of the two individual projects. Calculate the NPV of the combined project. Does it appear to be worth$$ doing? Would you recommend investing in the combined$$ project?

c$.$What is the ethical issue that Diane$$ faces? Is any harm done if she does the favor for David as he$$ asks?