Highland Mining and Minerals Co. is considering the purchase oftwo gold mines. Only one investment will be made. The Australiangold mine will cost $1,630,000 and will produce $306,000 per yearin years 5 through 15 and $572,000 per year in years 16 through 25.The U.S. gold mine will cost $2,012,000 and will produce $270,000per year for the next 25 years. The cost of capital is 10 percent.Use Appendix D for an approximate answer but calculate your finalanswers using the formula and financial calculator methods. (Note:In looking up present value factors for this problem, you need towork with the concept of a deferred annuity for the Australianmine. The returns in years 5 through 15 actually represent 11years; the returns in years 16 through 25 represent 10years.)
  
a-1. Calculate the net present value for eachproject. (Do not round intermediate calculations and roundyour 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 extra1 percent premium over the normal cost of capital because of itsriskiness and relative uncertainty of cash flows. Calculate the newnet present value given this assumption. (Negative amountshould be indicated by a minus sign. Do not round intermediatecalculations and round your answer to 2 decimal places.)
  

  
  
b-2. Does the new assumption change the investmentdecision?
  

	yes
	No