Calculate the npv in zar using the zar equivalent cost

Assignment Help Financial Econometrics

Reference no: EM13327728

Omega Industries, a U.S MNC, is contemplating making a foreign capital expenditure in SA. The initial cost of the project is ZAE10000. The annual cash flows over the five year economic life of the project in ZAR are estimated to be 3000, 4000, 5000, 6000 and 7000. 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 U.S and 7 percent in SA. The current spot foreign exchange rate is ZAR/USD = 3.75. Determine the NPV for the project in USD by:

a) Calculating the NPV in ZAR using the ZAR equivalent cost of capital according to the Fischer Effect and the converting to USD at the current spot rate

b)Converting all cash flows from ZAR to USD at purchasing power parity forecast exchange rates and then calculting the NPV at the dollar cost of capital.

c) What is the NPV in dollars if the actual pattern of ZAR/USD exchange rate is: S(0) = 3.75, S(1) = 5.7, S(2) = 6.7, S(3) = 7.2, S(4) = 7.7, and S(5) = 8.2?

Reference no: EM13327728

Questions Cloud

Evaluate some simple semantic web application : Comparative evaluation of alternative AI-based machine learning approaches on a broad range of classification tasks.

How much in usd value did you receive when you sold coupon : A 10-year coupon (paid semianually) bond has a face value of $1000, you buy it at par and sell it one year later for a 6% yield to maturity. how much in USD value did you receive when you sold it

Find out the direction of a reaction in a solution : Determine the direction of a reaction in a solution containing initially 10-4M acetaldehyde, 0.1M ethanol, 0.1M pyruvate, and 10-2M lactate. What is the value of Gibbs' function for this reaction

What is the work done by the force of friction : A horizontal force of 200 N is applied to a 55-kg cart across a 10-m level surface. If the cart accelerates at m/s^2, then what is the work done by the force of friction

Calculate the npv in zar using the zar equivalent cost : Long run inflation is forecasted to be 3 percent per annum in the U.S and 7 percent in SA. The current spot foreign exchange rate is ZAR/USD = 3.75. Determine the NPV for the project in USD by

Design of an autonomous underwater vehicle : Prepare a PPT on Design of an Autonomous Underwater Vehicle - block diagram is capturing of pictures or images is done by making use of only one camera and the template should be matched or compared with only one image and not both the images.

Explain a solution should be mixed to prepare the buffer : You need to prepare 100.0 mL of a pH=4.00 buffer solution using 0.100 M benzoic acid (pKa = 4.20) and 0.200 M sodium benzoate. How much of each solution should be mixed to prepare this buffer

What is the magnitude of the total momentum of the two cars : Two identical cars (m = 1350 kg) are traveling at the same speed of 18.9 m/s. What is the magnitude of the total momentum of the two cars

Determine what is the projects irr : A project has an initial cost of $40,000, expected net cash inflows of $9,000 per year for 7 years, and a cost capital of 11%. What is the project's IRR

User Account

All Pages