Question 4 (10 points) Marian Evans owns a large ranch in Western Australia. She is considering selling the right to mine a section of her land. Marian expects a mining project to cause her a loss of $25m in farm income (in present value), because of the loss of the use of the land. On the other hand, the mine would build a road, which would save her $5m in transportation costs (in present value) over the life of the ranch. a) What is Marian's WTS? If BHP expect to earn $100m in profit from the mine, what would be the negotiated price? b) BHP is the only mining company conducting minerals testing in this region. BHP review their minerals testing budget. BHP conclude that if they increase their testing budget, they will identify more potential developments than just the one on Marian's property, in fact, even more than they have the capacity for. If they increase their testing budget substantially, they expect to find roughly 3 properties (owned by two other people), with roughly the following types of values: Opportunity cost Expected earnings of the mine Property 1 (Marian's) see (a) 100 Property 2 15 90 Property 3 10 80 If BHP has the capacity to develop at most 2 mines (because of their limited resources in people and equipment), what would the outcome of negotiations with these property owners be? What is the range of possible prices for each property sold? c) (Optional question, worth one bonus point.) The CEO must now decide whether increasing the testing budget would be a good idea. If they do not increase the testing budget, they will just negotiate with Marian. What are their profits? If they do increase the testing budget, they will find the three properties above, and develop two of them. What are their profits, if the necessary budget increase is $35m? We will assume that