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Can you answer please? Delta Company, a US. MNC. is contemplating making a foreign captal expenditure in South Afica. The initial cost of the project
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Delta Company, a US. MNC. is contemplating making a foreign captal expenditure in South Afica. The initial cost of the project is. ZAR11,000. The annual cash flows over the fiveyear economic life of the project in ZAR are estimated to be 3,300,4,300,5,290. 6.280, and 7,250. The parent firm's cost of capital in dollars is 9.5 percent. Long run infation is forecasted to be 3 percent per annum in the United States and 7 percent in South Afnca. The current spot foreign exchange rate is ZARUSD = 3.75. 0. Calculating the NPV in ZAR using the ZAR equivalent cost of capital according to the Fisher effect and then converting to USD at the current spot rate b. Converting all cash flows from ZAR to USO at purchasing power party forecasted exchange rates and then caiculating the NPV at the dollar cost of capital. c. Are the two dollar NPVs different or the same? Different Same d. What is the NPV in dollars if the actual pattern of ZARUSD exchange rates 15:S(0)=375,S(1)=57,S(2)=67,S(3)=7.2,S(4)=7.2. and S(5)=7.5 ? (Negotive omount should be shown with a minus sign.) Step by Step Solution
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