Your boss believes the company’s power plant is producing too much air pollution on a typical island. Your boss gives you three choices for dealing with this problem because he/she does not want to deal with it:
- You can pay a pollution tax (Carbon Offsets) one time of $13,000,000 immediately.
- You can close the plant and install a power cable from the mainland to the Island. That will cost you $1,000,000 at the end of this year, $3,000,000 at the end of next year and then $750,000 forever for maintenance.
- You can retrofit the plant with scrubbers to reduce the emissions to make the plant green. That will cost $7.5m at the end of this year and $100,000 for 50-years for maintenance.
Assume that the cost of generating power on the mainland is approximately the same as the cost of generating power at the Island’s plant. Assume, this comes as a surprise to you and you, have not saved any money in reserves, and you need to raise capital. Additional information is that market has a 12 percent market risk premium on the power plant with the risk-free rate being 5 percent with a company tax rate of 35 percent.
Current total raised capital at the power plant: (This will help you calculate the WACC)
- Debt – 7,000 outstanding bonds, at 7.5% coupon and 20 years to maturity. These bonds pay interest semiannually and quoted a price of 108 percent of par.
- Common Stock -180,000 shares outstanding, selling for $50 per share: Beta .90.
- Preferred Stock – 8,000 shares of 5.5 percent preferred stock outstanding, currently selling for $95.00 per share.
Please answer in essay format and provide your Excel document showing all your calculation in appendixes choose the best option for Island. Support your answer with your calculations. Also, to calculations use specified resources, other appropriate scholarly resources, including older articles.
Length: However long you need to answer the question (Paragraph per option is normal).
Your paper should demonstrate thoughtful consideration of the ideas and concepts presented in the course and provide new thoughts and insights relating directly to this topic. Your response should reflect scholarly writing and current APA standards. Be sure to adhere to University’s Academic Integrity Policy.
Upload your assignment using the Upload Assignment button below.
Grading Guideline –
- The introduction should state the answer and establish the topic and a clear thesis statement.
- The conclusion summarizes the main points and leaves the reader with a strong comprehension of the paper’s significance and the author’s understanding of the correct financial decision.
- All research is correctly credited, using correct APA format.
- Grammatically correct – No spelling, grammar, or mechanics errors.
| RUBRIC | ||||
|---|---|---|---|---|
| Criteria | Exemplary | Accomplished | Developing | Beginning |
|
Financial Management
 Weight 14.00%
|
100 %
Demonstrates mastery and accuracy of most of the concepts, terms, and theories of finance. |
90 %
Demonstrates mastery and accuracy of some of the concepts, terms, and theories of finance. |
75 %
Demonstrates moderate understanding of a few of the concepts, terms and theories, but lacks a mastery of the majority of finance. |
50 %
Demonstrates basic understanding of the concepts, terms, and theories, but lacks any mastery at all of finance. |
|
Time Value of Money
Weight 14.00%
|
100 %
Demonstrates mastery of calculating and applying the concept of the time value of money to make financial management decisions valuing securities, including debt and equity instruments. |
90 %
Demonstrates mastery of some of the concepts of calculating and applying the concept of the time value of money to make financial management decisions valuing securities, including debt and equity instruments. |
75 %
Demonstrates minimal understanding of the concepts of calculating and applying the concept of the time value of money to make financial management decisions valuing securities, including debt and equity instruments. |
50 %
Demonstrates basic understanding of the concepts, and lacks mastery of calculating and applying the concept of the time value of money to make financial management decisions valuing securities, including debt and equity instruments. |
|
Measure of Risk
Weight 14.00%
|
100 %
Demonstrates mastery of calculating and applying the principles of capital investment decisions to measure risk and return decisions. |
90 %
Demonstrates mastery of most of the concepts regarding calculating and applying the principles of capital investment decisions to measure risk and return decisions. |
75 %
Demonstrates minimal mastery of calculating and applying the principles of capital investment decisions to measure risk and return decisions. |
50 %
Demonstrates basic understanding of the concepts, but lacks mastery of calculating and applying the principles of capital investment decisions to measure risk and return decisions. |
|
Capital Structure
Weight 15.00%
|
100 %
Recognizes & expertly understands capital structure in raising funds so that there is a balance maintained between debt and equity capital. |
90 %
Is able to recognize & understand most of the concepts of capital structure in raising funds so that there is a balance maintained between debt and equity capital. |
75 %
Is able to recognize & understand moderately the capital structure in raising funds so that there is a balance maintained between debt and equity capital. |
50 %
Is able to recognize & understand minimally the capital structure in raising funds so that there is a balance maintained between debt and equity capital. |
|
Financial Ratios
Weight 14.00%
|
100 %
Demonstrates the ability to calculate financial ratios using data from financial statements for financial analysis and control within a corporation. |
90 %
Demonstrates the ability to calculate financial ratios using data from financial statements for financial analysis and control within a corporation with minimal errors. |
75 %
Demonstrates the ability to calculate financial ratios using data from financial statements for financial analysis and control within a corporation with a moderate amount of errors. |
50 %
Demonstrates the ability to calculate financial ratios using data from financial statements for financial analysis and control within a corporation with many errors. |
|
Investment Decisions
Weight 15.00%
|
100 %
Can apply capital requirements to investment decisions due to the cost of capital. |
90 %
Can apply capital requirements to investment decisions due to the cost of capital for most cases. |
75 %
Can apply capital requirements to investment decisions due to the cost of capital for moderate cases. |
50 %
Can apply capital requirements to investment decisions due to the cost of capital for few cases. |
|
Writing Flow
Weight 14.00%
|
100 %
Expert organization of ideas and thoughts, and expert flow from subject to subject. Great transitions. |
90 %
Competent organization of ideas and thoughts, and competent flow from subject to subject. Some minor transition issues. |
75 %
Basic organization of ideas and thoughts, and basic flow from subject to subject. Choppy at times. |
50 %
Consistent lack of organization of thoughts and is all over the map. Jumps around from subject to subject with no cadence. |
