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 $1,667,000 and will produce $346,000 per year in years 5 through 15 and $589,000 per year in years 16 through 25. The U.S. gold mine will cost $2,005,000 and will produce $276,000 per year for the next 25 years. The cost of capital is 8 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. The Australian mine The U.S. mine Net Present Value
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 $1,667,000 and will produce $346,000 per year in years 5 through 15 and $589,000 per year in years 16 through 25. The U.S. gold mine will cost $2,005,000 and will produce $276,000 per year for the next 25 years. The cost of capital is 8 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. The Australian mine The U.S. mine Net Present Value
Chapter15: International Corporate Governance And Control
Section: Chapter Questions
Problem 11QA
Related questions
Question
Transcribed Image Text:a-2. Which investment should be made?
O Australian mine
OU.S. mine
b-1. Assume the Australian mine justifies an extra 4 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.
The Australian mine
Net Present Value
![Problem 13-17 (Algo) Deferred cash flows and risk-adjusted discount rate [LO13-1]
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 $1,667,000 and will produce $346,000 per year in years 5 through 15 and $589,000 per year in years 16
through 25. The U.S. gold mine will cost $2,005,000 and will produce $276,000 per year for the next 25 years. The cost of capital is 8
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.
The Australian mine
The U.S. mine.
Net Present Value](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F54427774-a5c5-403c-98fb-5d963fc4c90a%2Fa3bee614-335a-431e-a943-711abf7e3d7d%2F8cho4xq_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Problem 13-17 (Algo) Deferred cash flows and risk-adjusted discount rate [LO13-1]
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 $1,667,000 and will produce $346,000 per year in years 5 through 15 and $589,000 per year in years 16
through 25. The U.S. gold mine will cost $2,005,000 and will produce $276,000 per year for the next 25 years. The cost of capital is 8
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.
The Australian mine
The U.S. mine.
Net Present Value
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