Kemper Co. established a subsidiary in South Africa 2 years ago, The original plans called for Kemper to operate the subsidiary for a total of 4 years. Now it would like to reassess the situation because exchange rate fore casts for the South African rand indicate that it may depreciate from its current level of $.05 to $0.51 next year and to $.048 in the following year. Kemper could sell the subsidiary today for 4 million rand to a potential acquirer. If Kemper continues to operate the subsidiary, it will generate cash flows of 2 million rand next year and 3 million rand in the following year. These cash flows would be remitted back to the parent in the U.S. The required rate of return of the project is 14 percent.

Calculate the present value of continuing operations through Year 4 in U.S. dollars

How many dollars will the company receive, in U.S. dollars, if it sells the subsidiary now?

Should the company sell the subsidiary or continue operations? Why?

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