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HIghland MInIng and Minerals Company is considering the purchase of two gold mines. Only one Investment will be made. The Australlan gold mine will cost
HIghland MInIng and Minerals Company is considering the purchase of two gold mines. Only one Investment will be made. The Australlan gold mine will cost $1,630,000 and will produce $361,000 per year In years 5 through 15 and $555,000 per year In years 16 through 25 . The U.S. gold mIne will cost $2,020,000 and will produce $258,000 per year for the next 25 years. The cost of capltal Is 10 percent. Use AppendIx D for an approximate answer but calculate your final answers using the formula and financlal calculator methods. (Note: In looking up present value factors for this problem, you need to work with the concept of a deferred annulty for the Australlan 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 Intermedlate calculatlons and round your answers to 2 decimal places. a-2. Which Investment should be made? Australlan mine U.S. mIne b-1. Assume the Australlan mine justlfies an extra 3 percent premium over the normal cost of capltal because of Its riskiness and relative uncertainty of cash flows. Calculate the new net present value glven this assumption. Note: Negatlve amount should be Indlcated by a minus sign. Do not round Intermedlate calculatlons and round your answer to 2 decimal places. b-2. Does the new assumption change the Investment decision? Yes No
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