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Problem 1 8 . 5 Delta Company, a U . S . MNC , Is contemplating making a forelgn capital expenditure in South Africa. The
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Delta Company, a US MNC Is contemplating making a forelgn capital expenditure in South Africa. The Initial cost of the project is ZAR The annual cash flows over the fiveyear economic life of the project In ZAR are estimated to be and The parent firm's cost of capital in dollars is percent. Longrun Inflation is forecasted to be percent per annum in the United States and percent in South Africa. The current spot foreign exchange rate Is ZAR per USD
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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: and
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