Determine the NPV in USD by calculating the NPV

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Question - Delta Company, a U.S. MNC, is contemplating making a foreign capital expenditure in South Africa. The initial cost of the project is ZAR92. The annual cash flows over the five year economic life of the project in ZAR are estimated to be 26, 30, 37, 45, and 54. The parent firm's cost of capital in dollars is 7.5 percent. Long-run inflation is forecasted to be 2.8 percent per annum in the U.S. and 9 percent in South Africa. The current spot foreign exchange rate is USD/ZAR = 13.81 (Rand/$). Determine the NPV in USD by 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.

Reference no: EM133035666

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