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 $1,609,000 and will produce $370,000 per year in years 5 through 15 and $538,000 per year in years 16 through 25. The U.S. gold mine will cost $2,032,000 and will produce $312,000 per year for the next 25 years. The cost of capital is 5 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?

	Australian mine
	U.S. mine

b-1.

Assume the Australian mine justifies an extra 3 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
	No

Appendix D Present value of an annuity of $1, PW Percent Period 1%. 2%. 3% 4% 5% 6% 7% 8% 9% 10% 11% 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 1.970 1.942 1.913 1.886 1.859 1.833 1.808 1.783 1.759 1.736 1.713 2.94 2.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487 2.444 3.902 3.808 3.546 3.465 3.630 3.387 3.312 3.240 3.170 3.102 4.853 4.713 4.580 4.452 4.329 4.212 4.100 3.993 3.890 3.791 3.696 5.795 5.60 5.417 5.242 5.076 4.917 4.767 4.623 4.486 4.355 4.231 6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868 4.712 7.652 7.325 7.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335 5.146 6.802 8.566 8.162 7.786 7.435 7.108 6.515 6.247 5.995 5.759 5.537 10 9.471 8.983 8.530 7.722 7.360 7.024 6.710 6.418 6.145 5.889 11 0.368 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495 6.207 10.575 9.385 7.943 7.536 7.161 12 11.255 9.954 8.863 8.384 6.814. 6.492 13 12.134 11.348 10.635 9.986 9.394 8.853 8.358 7.904. 7.487 7.103 6.750 14 13.004. 12.106 11.296 10.563 9.899 9.295 8.745 8.244 7.786 7.367 6.982 15 13.865 12.849 11.938 11.118 10.380 9.712 9.108 8.559 8.061 7.606 7.191 16 4.718 13.578 12.561 11.652 10.838 10.106 9.447 8.85 8.313 7.824. 7.379 17 15.562 13.166 12.166 11.274 10.477 9.763 9.122 8.544 8.022 7.549 14.292 18 16.398 14.992 13.754 12.659 11.690 10.828 10.059 9.372 8.756 8.20 7.702 19 17.226 15.678 14.324 13.134. 12.085 11.158 10.336 9.604 8.950 8.365 7.839 20 18.046 16.351 14.877 13.590 12.462 11.470 10.594 9.818 9.129 8.514 7.963 25 22.023 19.523 17.413 15.622 14.094. 12.783 11.654. 10.675 9.823 9.077 8.422 30 25.808 22.396 19,600 17.292 15.372 13.765 12.409 11.258 10.274. 9.427 8.694 32.835 27.355 40 23.115 19.793 17.159 15.046 13.332 11.925 10.757 9.779 8.951 50 39.196 31.424 25.7300 21.482 18.256 15.762 13.80 12.233 10.962 9.915 9.042 Appendix D (concluded) Present value of an annuity of $1 Percent Period 13% 14%. 15% 16% 17% 18% 19% 20% 25% 30% 35% 40% 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833 0.800 0.769 0.741 0.714 1.647 1.547 1.528 1.289 1.224 1.668 1.626 1.605 1.585 1.566 1.440 1.361 2.36 2.322 2.283 2.246 2.210 2.174 2.140 2.106 1.952 1.816 1.696 1.589 2.974. 2.914 2.855 2.798 2.743 2.690 2.639 2.589 2.362 2.166 1.997 1.849 3.517 3.433 3.352 3.274 3.199 3.127 3.058 2.991 2.689 2.436 2.220 2.035 3.998 3.889 3.784 3.685 3.589 3.498 3.410 3.326 2.95 2.643 2.385 2.168 2.263 4.423 4.288 4.160 3.922 3.812 3.706 3.605 3.161 2.508 4.039 2.802 4.799 4.639 4.487 4.344 4.207 4.078 3.954. 3.837 3.329 2.925 2.598 2.331 2.665 5.132 4.946 4.772 4.607 4.451 4.303 4.163 4.031 3.463 3.019 2.379 10 5.426 5.216 5.019 4.833 4.659 4.494 4.339 4.192 3.571 3.092 2.715 2.414 2.438 11 5.687 5.453 5.234 5.029 4.836 4.656 4.486 4.327 3.656 3.147 2.752 12 5.918 5.660 5.421 5.197 4.988 4.793 4.61 4.439 3.725 3.190 2.779 2.456 13 6.122 5.842 5.583 5.342 4.910 4.715 4.533 3.780 3.223 2.799 2.469 14 6.302 6.002 5.724 5.468 5.229 5.008 4.802 4.611 3.824 3.249 2.814 2.478 15 6.462 6.142 5.847 5.575 5.324 5.092 4.876 4.675 3.859 3.268 2.825 2.484. 16 6.604 6.265 5.954, 5.668 5.405 5.162 4.938 4.730 3.887 3.283 2.834. 2.489 6.373 6.047 3.295 17 6.729 5.749 5.475 5.222 4.988 4.775 3.910 2.840 2.492 18 6.840 6.467 6.128 5.818 5.534 5.273 5.033 4.812 3.928 3.304 2.844. 2.494. 19 6.938 6.550 6.198 5.877 5.584 5.316 5.070 4.843 3.942 3.311 2.848 2.496 20 7.025 6.623 6.259 5.929 5.628 5.353 5.10 4.870 3.954 3.316 2.850 2.497 25 7.330 6.873 6.464 6.097 5.766 5.467 5.195 4.948 3.985 3.329 2.856 2.499 30 7.496 7.003 6.566 5.829 5.517 5.235 4.979 3.995 3.332 2.857 2.500 40 7.634 7.105 6.642 6.233 5.871 5.548 5.258 4.997 3.999 3.333 2.857 2.500 50 7.675 7.133 6.661 6.246 5.880 5.554 5.262 4.999 4.000 3.333 2.857 2.500 12% 0.893 1.690 2.402 3.037 3.605 4.1 11 4.564 4.968 5.328 5.650 5.938 6.194 6.424 6.628 6.811 6.974 7.120 7.250 7.366 7.469 7.843 8.055 8.244 8.304 50% 0.667 1.407 1.605 1.737 1.824. 1.883 1.922 1.948 1.965 1.977 1.985 1.990 1.993 1.995 1.997 1.998 1.999 1.999 1.999 2.000 2.000 2.000 2.000