Gold Fields Mining Company is considering the purchase of two gold mines. Only one investment will be made. The Australian gold mine will cost $1,649,000 and will produce $353,000 per year in years 5 through 15 and $503,000 per year in years 16 through 25. The U.S. gold mine will cost $2,054,000 and will produce $282,000 per year for the next 25 years. Gold Fields cost of capital is 13 percent.

a. At what discount rate will the two options be equally valuable?

b. What is the better option if the Australian mine justifies an extra 2 percent premium over the normal cost of capital because of its riskiness and relative uncertainty of cash flows?