Solution-Determine the ZAR equivalent cost of capital

Determine the ZAR equivalent cost of capital

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Reference no: EM133030281

Question - Delta Company, a U.S. MNC, is contemplating making a foreign capital expenditure in South Africa. The initial cost of the project is ZAR118. The annual cash flows over the five year economic life of the project in ZAR are estimated to be 26, 33, 36, 48, and 55. The parent firm's cost of capital in dollars is 9.2 percent. Long-run inflation is forecasted to be 2.1 percent per annum in the U.S. and 8.6 percent in South Africa. The current spot foreign exchange rate is USD/ZAR = 13.71 (Rand/$). Determine the ZAR equivalent cost of capital according to the Fisher Effect.

Reference no: EM133030281

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Determine the ZAR equivalent cost of capital

Reference no: EM133030281

Reference no: EM133030281

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