Highland Mining and Minerals Company is considering the purchase of two gold mines. Only one investment will be made. The Australian gold mine will cost $1,645,000 and will produce $309,000 per year in years 5 through 15 and $515,000 per year in years 16 through 25. The U.S. gold mine will cost $2,054,000 and will produce $252,000 per year for the next 25 years. The cost of capital is 9 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

Highland Mining and Minerals Company is considering the purchase of two gold mines. Only one investment will be made. The Australian gold mine will cost $1,645,000 and will produce $309,000 per year in years 5 through 15 and $515,000 per year in years 16 through 25 . The U.S. gold mine will cost $2,054,000 and will produce $252,000 per year for the next 25 years. The cost of capital is 9 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. Note: Do not round intermediate calculations and round your answers to 2 decimal places. a-2. Which investment should be made? Australian mine 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. Note: Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places. b-2. Does the new assumption change the investment decision? Yes No