Greetings,

I've been able to solve some of this problem, but am having trouble with the NPV portion. Any help is greatly appreciated. Thank you for your time!

Your company asks you to help them reduce air pollution in their power plant. You're presented with three options.

(1.) Provide the local government a one-time tax of $13,000,000 for the pollution.

(2.) Shut down the power plant and install a power cable that runs from one of the other nearby islands that has a powerplant. This would 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.

(3.) The powerplant can be retrofitted with technology that reduces pollution emissions and makes the powerplant green. The cost of this project would be $750,000,000 at the end of this year, and $100,000 for the next 50 years for maintenance.

This current market conditions for your company are as follows.

Weighed Average Cost of Capital (WACC)= 10.38%

Semi-annual YTM of bonds= 6.76%

After-tax cost of debt= 4.40%

Cost of Common Stock= 15.80%

Total Market Value= $17,320,000

Cost of Preferred Stock= 5.79%

We already know the Net Present Value of Option 1 in $13,00,000.

Using cashflows, what is the NPV of Options 2 and 3?