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 $1,627,000 and will produce $329,000 per year in years 5 through 15 and $518,000 per year in years 16 through 25. The U.S. gold mine will cost $2,042,000 and will produce $280,000 per year for the next 25 years. The cost of capital is 11 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.) The Australian mine The U.S. mine a-2. Which investment should be made? O Australian mine OU.S. mine Net Present Value 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.) The Australian mine Net Present Value
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 $1,627,000 and will produce $329,000 per year in years 5 through 15 and $518,000 per year in years 16 through 25. The U.S. gold mine will cost $2,042,000 and will produce $280,000 per year for the next 25 years. The cost of capital is 11 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.) The Australian mine The U.S. mine a-2. Which investment should be made? O Australian mine OU.S. mine Net Present Value 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.) The Australian mine Net Present Value
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Transcribed Image Text: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 $1,627,000 and will produce $329,000 per year in years 5 through 15 and $518,000 per year in years 16 through
25. The U.S. gold mine will cost $2,042,000 and will produce $280,000 per year for the next 25 years. The cost of capital is 11 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.)
The Australian mine
The U.S. mine
a-2. Which investment should be made?
Australian mine
OU.S. mine
Net Present Value
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.)
The Australian mine
Net Present Value
< Prev
6 of 8
Next >
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education