Highland Mining and Minerals Co. is considering the purchase of two gold mines. Only one investment will be made. The Australian gold mine will cost $1,648,000 and will produce $338,000 per year in years 5 through 15 and $533,000 per year in years 16 through 25. The U.S. gold mine will cost $2,035,000 and will produce $275,000 per year for the next 25 years. The cost of capital is 12 percent Use Appendix D for an approximate answer but calculate your final answers using the formula and financial calculator methods. (Note In looking up present value factors for this problem, you need to work with the concept of a deferred annuity for the Australian mine. The returns in years 5 through 15 actually represent 11 years, the returns in years 16 through 25 represent 10 years.) a-1. Calculate the net present value for each project. (Do not round intermediate calculations and round your answers to 2 decimal places.) Net Present Value The Australian mine The U.S. mine a-2. Which investment should be made? O Australian mine OU.S. mine WE P9 search O U.S. mine b-1. Assume 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. Calculate the new net present value given this assumption. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.) Net Present Value The Australian mine b-2. Does the new assumption change the investment decision? yes O No arch Appendix D Present value of an annuity of S1, PVIFA PVA = A1 (1+1) Percent Period 1% 2% 3% 4% 5% 6% 8% 1 9% 0.990 7% 0.935 10% 0.971 0.952 11% 0.901 2 0.909 1.859 1.808 3 1.970 2.941 3.902 0.943 1.833 2.673 3.465 2.723 1.913 2.829 3.717 4.580 5.417 1.713 2.444 4 1.736 2.487 3.170 2.624 3.387 4.100 5 3.546 4.329 5.076 3.102 4.212 6 4.917 12% 0.893 1.690 2.402 3.037 3.605 4.111 4.564 4.968 4.767 0.917 1.759 2.531 3.240 3.890 4.486 5.033 5.535 5.995 6.418 4.853 5.795 6.728 7.652 8.566 9.471 3.696 4.231 0.980 1.942 2.884 3.808 4.713 5.601 6.472 7.325 8.162 8.983 9.787 10.575 11.348 7 0.962 1.886 2.775 3.630 4.452 5.242 6.002 6.733 7.435 8.111 8.760 9.385 9.986 10.563 11.118 6.230 7.020 5.582 8 0.926 1.783 2.577 3.312 3.993 4.623 5.206 5.747 6.247 6.710 7.139 7.536 7.904 8.244 8.559 4.712 5.146 9 5.786 6.463 7.108 7.722 8.306 6.210 6.802 7.786 8.530 10 11 7.360 10.368 9.253 7.887 5.537 5.889 6.207 6.492 6.750 5.328 5.650 5.938 6.194 6.424 6.805 7.161 12 13 8.863 11.255 12.134 8.384 9.954 10.635 8.853 7.487 3.791 4.355 4.868 5.335 5.759 6.145 6.495 6.814 7.103 7.367 7.606 7.824 8.022 8.201 8.365 8.514 9.077 14 5.389 5.971 6.515 7.024 7.499 7.943 8.358 8.745 9.108 9.447 9.763 10.059 10.336 10.594 12.106 12.849 6,982 11.296 11.938 6.628 15 6.811 16 7.786 8.061 8.313 8.544 - 9.394 9.899 10.380 10.838 11.274 11.690 12.085 8.851 17 18 13.004 13.865 14.718 15.562 16.398 17.226 18.046 22.023 25.808 32.835 39.196 6.974 7.120 7.250 8.756 9.295 9.712 10.106 10.477 10.828 11.158 11.470 12.783 13.765 12.561 13.166 13.754 14.324 14.877 17.413 19.600 11.652 12.166 12.659 13.134 13.590 15.622 13.578 14.292 14.992 15.678 16.351 19.523 22.396 27.355 19 7.191 7.379 7.549 7.702 7.839 7.963 8.422 9.122 9.372 9.604 9.818 10.675 8.950 20 12.462 9.129 9.823 7.366 7.469 7.843 8.055 11.654 25 30 14.094 15.372 17.292 12.409 10.274 9.427 8.694 40 15.046 9.779 23.115 25.730 8.951 19.793 21.482 11.258 11.925 12.233 17.159 18.256 13.332 13.801 10.757 10.962 8.244 8.304 50 31.424 15.762 9.915 9.042 ji 9 P Appendix D (concluded) Present value of an annuity of $1 Percent Period 14% 15% 16% 13% 0.885 17% 18% 19% 20% 25% 35% 40% 50% 1 0.833 2 0.667 1.668 0.870 1.626 2.283 2.855 0.862 1.605 2.246 1.528 1.111 3 2.106 4 0.847 1.566 2.174 2.690 3.127 3.498 0.800 1.440 1.952 2.362 2.689 0.714 1.224 1.589 1.849 0.840 1.547 2.140 2.639 3.058 3.410 2.798 0.877 1.647 2.322 2.914 3.433 3.889 4.288 4.639 4.946 1.407 1.605 5 3.352 3.274 3.685 2.589 2.991 3.326 1.737 6 0.855 1.585 2.210 2.743 3.199 3.589 3.922 4.207 4.451 4.659 4.836 3.784 2.035 2.168 2.361 2.974 3.517 3.998 4.423 4.799 5.132 5.426 5.687 2.951 7 30% 0.769 1.361 1.816 2.166 2.436 2.643 2.802 2.925 3.019 3.092 3.147 3.190 3.223 3.812 8 4.160 4.487 4.772 5.019 4.039 4.344 4.607 4.078 4.303 4.494 4.656 9 10 3.706 3.954 4.163 4.339 4.486 1.824 1.883 1.922 1.948 1.965 4.833 3.605 3.837 4.031 4.192 4.327 4.439 4.533 5.216 5.453 3.161 3.329 3.463 3.571 3.656 3.725 3.780 11 5.234 5.029 12 4.988 4.611 5.918 6.122 4.793 4.910 5.197 5.342 5.468 13 1.977 1.985 1.990 5.660 5.842 6.002 6.142 0.741 1.289 1.696 1.997 2.220 2.385 2.508 2.598 2.665 2.715 2.752 2.779 2.799 2.814 2.825 2.834 2.840 2.844 2.848 2.850 2.856 2.857 2.857 2.857 5.118 14 5.008 6.302 6.462 5.575 15 16 5.421 5.583 5.724 5.847 5.954 6.047 6.128 6.198 6.259 6.464 6.604 4.611 4.675 4.730 4.775 6.265 5.229 5.324 5.405 5.475 5.534 5.092 5.162 5.222 5.273 2.263 2.331 2.379 2.414 2.438 2.456 2.469 2.478 2.484 2.489 2.492 2.494 2.496 2.497 2.499 2.500 2.500 2.500 17 6.729 5.668 5.749 5.818 5.877 5.929 18 3.824 3.859 3.887 3.910 3.928 3.942 3.954 6.373 6.467 6.550 6.623 6.840 6.938 4.812 4.715 4.802 4.876 4.938 4.988 5.033 5.070 5.101 5.195 5.235 5.258 5.262 3.249 3.268 3.283 3.295 3.304 3.311 3.316 3.329 3.332 3.333 4.843 19 20 25 5.584 5.628 5.316 5.353 1.993 1.995 1.997 1.998 1.999 1.999 1.999 2.000 2.000 2.000 2.000 7.025 4.870 6.873 5.766 6.097 6.177 5.457 5.517 30 7.003 7.330 7.496 7.634 7.675 6.566 6.642 4.948 4.979 4.997 3.985 3.995 3.999 40 5.829 5.871 5.880 7.105 6.233 6.246 5.548 7.133 50 6.661 5.554 4.999 4.000 3.333 p