The Sardar Sarovar Narmada Nigam Ltd., is a state owned hydropower generating utility in Gujrat which is
Question:
The Sardar Sarovar Narmada Nigam Ltd., is a state owned hydropower generating utility in Gujrat which is the western most state of India. It is considering a new power plant in Navagam, Kevadia, which is facing severe water and power crisis. Power from the plant would be sold in the Kevadia district along with other 14 districts of the Gujrat state, where it is badly needed.
Because the firm has received a permit from the concerned regulators, the plant would be legal; but it would cause some environmental problems. The company could spend an additional $50 million at Year 0 to mitigate the environmental problem, but it would not be required to do so. The plant without mitigation would cost $250 million, and the expected net cash inflows would be $85 million per year for 8 years. If the firm does invest in mitigation, the annual inflows would be $92 million. Unemployment in the area where the plant would be built is high, and the plant would provide about 200 good jobs.
The risk-adjusted WACC is 16%.
Fundamentals of Financial Management
ISBN: 978-0324664553
Concise 6th Edition
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