Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Delta Company, a U.S. MNC, is contemplating making a foreign capital expenditure in South Africa. The initial cost of the project is ZAR13,400. The annual

image text in transcribed
image text in transcribed
image text in transcribed
image text in transcribed
Delta Company, a U.S. MNC, is contemplating making a foreign capital expenditure in South Africa. The initial cost of the project is ZAR13,400. The annual cash flows over the five-year economic life of the project in ZAR are estimated to be 4,180, 5,020,6,010, 7,000, and 7,850 . The parent firm's cost of capital in dollars is 9.5 percent. Long-run inflation is forecasted to be 3 percent per annum in the United States and 7 percent in South Africa. The current spot foreign exchange rate is ZAR per USD =3.75. Required: Complete this question by entering your answers in the tabs below. Converting all cash flows from ZAR to USD at purchasing power parity forecasted exchange rates and then calculating the NPV at the dollar cost of capital. Note: Do not round the intermediate calculations. Round the final answer to the nearest whole number. a. 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 USD at purchasing power parity forecasted exchange rates and then calculating the NPV at the dollar cost of capital. c. Are the two USD NPVs different or the same? d. What is the NPV in dollars if the actual pattern of ZAR per USD exchange rates is: S(0)=3.75,S(1)=5.7,S(2)=6.2,S(3)=6.5,S(4)= 6.9, and S(5)=6.9? Delta Company, a U.S. MNC, is contemplating making a foreign capital expenditure in South Africa. The initial cost of the project is ZAR13,400. The annual cash flows over the five-year economic life of the project in ZAR are estimated to be 4,180, 5,020, 6,010, 7,000, and 7,850. The parent firm's cost of capital in dollars is 9.5 percent. Long-fun inflation is forecasted to be 3 percent per annum in the United States and 7 percent in South Africa. The current spot foreign exchange rate is ZAR per USD =3.75. Required: Complete this question by entering your answers in the tabs below. Are the two USD NPVs different or the same? Are the two USD NPV's different or the same? a. 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 USD at purchasing power parity forecasted exchange rates and then calculating the NPV at the dollar cost of copital. c. Are the two USD NPVs different or the same? d. What is the NPV in doliors if the actual pottem of ZAR per USD exchange rates is: S(0)=3.75,S(0)=5.7,S(2)=6.2,S(3)=6.5,S(4)= Delta Company, a U.S. MNC, is contemplating making a foreign capital expenditure in South Africa. The initial cost of the project is ZAR13,400. The annual cash flows over the five-year economic life of the project in ZAR are estimated to be 4,180, 5,020,6,010, 7,000, and 7,850. The parent firm's cost of capital in dollars is 9.5 percent. Long-run inflation is forecasted to be 3 percent per annum in the United States and 7 percent in South Africa. The current spot foreign exchange rate is ZAR per USD =3.75. Required: Complete this question by entering your answers in the tabs below. Calculating the NPV in ZAR using the ZAR equivalent cost of capital according to the Fisher effect and then corverting to USD at the current spot rate. Note: Do not round the intermediate calculations. Round the final answer to the nearest whole number. a. Calculating the NPV in ZAR using the ZAR equilalent cost of capital according to the Fisher effect and then converting to USD ot the current spot rate. b. Converting all cash flows from ZAR to USD at purchasing power parity forecasted exchange rates and then calculating the NPV at the dollar cost of capita! c. Are the two USD NPVs different or the same? d. What is the NPV in dollars if the actual pattern of ZAR per USD exchange rates is: S(0)=3.75,S(1)=5.7,S(2)=6.2,S(3)=6.5,S(4)= 6.9 , and S(5)=6.9? Delta Company, a U.S. MNC, is contemplating making a foreign capital expenditure in South Africa, The initial cost of the project is ZAR13,400. The annual cash flows over the five-year economic life of the project in ZAR are estimated to be 4,180,5,020,6,010,7,00 and 7,850. The parent firm's cost of capital in dollars is 9.5 percent. Long-run inflation is forecasted to be 3 percent per annum in the United States and 7 percent in South Africa. The current spot foreign exchange rate is ZAR per USO =3.75. Required: Complete this question by entering your answers in the tabs below. What is the NPV in dollars if the actual pattern of ZAR/USD exchange rates is: S(0)=3.75,S(1)=5.7,S(2)=6.2,S(3)= 6.5,S(4)=6.9, and S(S)=6.9 ? Note: Negative amount should be shown with a minus sign. Do not round the intermediate calculations. Round the final answer to the nearest whole number. Show less A a. 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 USD at purchasing power parity forecasted exchange rates and then calculating the NPV at the dollar cost of capital. c. Are the two USD NPVs different or the same

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Commercial Aircraft Finance Handbook

Authors: Ronald Scheinberg

2nd Edition

1138558990, 978-1138558991

More Books

Students also viewed these Finance questions

Question

Demonstrate three aspects of assessing group performance?

Answered: 1 week ago