Delta Company, a U.S. MNC, is contemplating making a foreign capital expenditure in South Africa. The initial cost of the project is ZAR12,200. The annual cash flows over the five-year economic life of the project in ZAR are estimated to be 3,660, 4,660, 5,650, 6,640, and 7,550. 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. Required A Required B Required C Required D 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. NPV in USD using PPP rates Required A Required C >

Delta Company, a U.S. MNC, is contemplating making a foreign capital expenditure in South Africa. The initial cost of the project is ZAR12,200. The annual cash flows over the five-year economic life of the project in ZAR are estimated to be 3,660, 4,660, 5,650, 6,640, and 7,550. 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. Required A Required B Required C Required D 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. NPV in USD using PPP rates Required A Required C >

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 22P

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Delta Company, a U.S. MNC, is contemplating making a foreign capital expenditure in South Africa. The initial cost of the project is ZAR12,600. 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 9.5 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. Required A Required B Required C Required D 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…
A company is considering an investment project in Canada which has an initial cost of CAD5,785,000. The project is expected to return a one-time payment of CAD7,430,000 two years from now. The risk-free rate of return is 1.6 percent in the U.S. and 1.9 percent in Canada. The inflation rate is 1.5 percent in the U.S. and 1.8 percent in Canada. Currently, you can buy CAD 124.20 for $100. How much will the payment two years from now be worth in U.S. dollars? $5,917,265 $5,956,317 $5,927,028 $5,946,554 $5,936,791
Delta Company, a U.S. MNC, is contemplating making a foreign capital expenditure in South Africa. The initial cost of the project is ZAR11,200. The annual cash flows over the five-year economic life of the project in ZAR are estimated to be 3,360, 4,360, 5,350, 6,340, and 7,300. 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/USD = 3.75. 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. 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. Are the two dollar NPVs different or the same? multiple choice Different Same 4.What is the NPV in dollars if the actual pattern of ZAR/USD exchange rates is: S(0) = 3.75, S(1) =…
The South Korean multinational manufacturing firm, Nam Sung Industries, is debating whether to invest in a 2-year project in the United States. The project's expected dollar cash flows consist of an initial investment of $1 million with cash inflows of $700,000 in Year 1 and $600,000 in Year 2. The risk-adjusted cost of capital for this project is 12%. The current exchange rate is 1,055 won per U.S. dollar. Risk-free interest rates in the United States and S. Korea are: % U.S. S. Korea a. If this project were instead undertaken by a similar U.S.-based company with the same risk-adjusted cost of capital, what would be the net present value generated by this project? Do not round intermediate calculations. Round your answer to the nearest dollar. $ What would be the rate of return generated by this project? Do not round intermediate calculations. Round your answer to two decimal places. 1-Year 4.0% 3.0% Rate of return: 2-Year 5.25% 4.25% b. What is the expected forward exchange rate 1…
International Foods Corporation, a U.S.-‐based food company, is considering expanding its soup-‐processing operations in Switzerland. The company plans a net investment of $8 million in the project. The current spot exchange rate is SF6.25 per dollar (SF = Swiss francs). Net cash flows for the expansion project are estimated to be SF5 million for 10years and nothing thereafter. Based on its analysis of current conditions in Swiss capital markets, International Foods has determined that the applicable cost of capital for the project is 16 percent. Calculate the net present value of the proposed expansion project.
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A project costs Can$700,000 and has expected annual cash inflows of Can$300,000 for Years 1 through 3. The Canadian discount rate is 10 percent. The current spot rate is: $1 = Can$1.07. What is the NPV of this project in U.S. dollars using the foreign currency approach?
Consider this case: Sebrele Enterprises Inc. is a U.S. firm evaluating a project in Australia. You have the following information about the project: The project requires an investment of AU$915,000 today and is expected to generate cash flows of AU$900,000 at the end of each of the next two years. The current exchange rate of the U.S. dollar against the Australian dollar is $0.7823 per Australian dollar (AUS). The one-year forward exchange rate is $0.8102 / AU$, and the two-year forward exchange rate is $0.8412 / AU$. The firm's weighted average cost of capital (WACC) is 9.5%, and the project is of average risk. What is the dollar-denominated net present value (NPV) of this project? $610,602 $726,908 $581,526 $639,679
You are evaluating a proposed expansion of an existing subsidiary located in Switzerland. The cost of the expansion would be SF 16 million. The cash flows from the project would be SF 4.5 million per year for the next five years. The dollar required return is 13 percent per year, and the current exchange rate is SF 1.10. The going rate on Eurodollars is 4 percent per year. It is 2 percent per year on Swiss francs. a. Convert the projected franc flows into dollar flows and calculate the NPV. (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to 2 decimal places, e.g., 1,234,567.89.) b-1. What is the required return on franc flows? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b-2. What is the NPV of the project in Swiss francs? (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to 2 decimal places, e.g.,…
A US MNC has invested in a project in Brazil for three years. 10m Brazilian Real were to be remitted every year for this project for next 3 years. The funds cannot be remitted due to blocked funds and company will have to reinvest it at 4% locally. Withholding tax rate and discount rate are 10% each. The exchange rate will be a constant value of $0.24. Calculate the NPV of this project if parent company invested $5m initially. $1,837,002 -$1,048,710 $799,392 -$65,857
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You want to invest in a project in Canada. The project has an initial cost of C$1.6 million and is expected to produce cash inflows of C$750,000 a year for 3 years. The project will be worthless after the first 3 years. The expected inflation rate in Canada is 5 percent while it is only 3.5 percent in the U.S. The applicable interest rate for the project in Canada is 12 percent. The current spot rate is C$1 = $0.8637. What is the net present value of this project in Canadian dollars using the foreign currency approach? 1) C$187,924 2) C$201,373 3) C$246,460 4) C$265,139 5) C$267,528