Your power plant on Gilligan's Island is proudcing too much air polluction. The professor give you three choices for dealing with this problem: (a) You can pay a pollution tax (Carbon Offsets) onetime...

Your power plant on Gilligan's Island is proudcing too much air polluction. The professor give you three choices for dealing with this problem: (a) You can pay a pollution tax (Carbon Offsets) onetime of $13,000,000 immediately. (b) You can close the plant and install a power cable from the mainland to the island. That cost you $1,000,000 at the end of this year, $3,000,000 at the end of next year and then $500,000,000 forever for maintenance(FIND THE WACC).. (c) You can retrofit the plant with scrubber to reduce the emissions to make the plant green. That will cost $9m 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 approimately the same as the cost of generating power at your Gilligan's Island plant. Assume, this comes as a surprise to you and 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: Debt-7000 outstanding bonds at 7.5% coupon and 20 years to maturity. These bonds pay interest annually and quoted price of 108 percent of par, Common Stock 180,000 shares outstanding selling for $50 per share: Beta 90% CAPM is .118 or 11.8%(cost of equity). Preferred Stock-8,000 shares of 5.5 percent preferred stock outstanding, currently selling for $95.00 per share.

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