The IOA Division is also considering whether to undertake an investment in the West of the country (the West Project).
An initial cash outlay investment of ￡12 million will be required and a net cash inflow amounting to ￡5 million is
expected to arise in each of the four years of the life of the project.
The activities involved in the West project will cause the local river to become polluted and discoloured due to the
discharge of waste substances from mining operations.
It is estimated that at the end of year four a cash outlay of ￡2 million would be required to restore the river to its
original colour. This would also clear 90% of the pollution caused as a result of the mining activities of the IOA
Division.
The remaining 10% of the pollution caused as a result of the mining activities of the IOA Division could be cleared
up by a further cash outlay of ￡2 million.
(c) Evaluate the West project and, stating your reasons, comment on whether the board of directors of NCL plc
should spend the further ￡2 million in order to eliminate the remaining 10% of pollution. (6 marks)
(Ignore Taxation).
