Problem $18\mathrm{.}5$

Delta Company, a U$.$S$.$ MNC$,$ Is contemplating making a forelgn capital expenditure in South Africa. The Initial cost of the project is ZAR$12,600.$ The annual cash flows over the five$-$year economic life of the project In ZAR are estimated to be $3,780,4,780,5,770,6,760,$ and $7,650.$ The parent firm's cost of capital in dollars is $9\mathrm{.}5$ 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 $=3\mathrm{.}75.$

Requlred:

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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.

Note: Do not round the intermediate calculations. Round the final answer to the nearest whole number.

NPV in USD using fisher effect

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: $S(0)=3\mathrm{.}75,S(1)=5\mathrm{.}7,S(2)=6\mathrm{.}2,S(3)=6\mathrm{.}5,S(4)=6\mathrm{.}9,$ and $S(5)=72?$