Delta Company, a U.S. MNC, is contemplating making a foreign capital expenditure in South Africa. The initial cost of the project is ZAR10,800. The annual cash flows over the five-year economic life of the project in ZAR are estimated to be 3,240, 4,240, 5,230, 6,220, and 7,200. 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 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. NPV in USD using fisher effect 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 NPV in USD using PPP rates c. Are the two dollar NPVS different or the same? O Different O Same d. What is the NPV in dollars if the actual pattern of ZARAUSD exchange rates is: 5(0)-375, 5(1)-5.7, S(2)-6.7, 5(3)-72. S(4)-7.2. and S(5)-7.57 (Negative amount should be shown with a minus sign.) NPV in USD using actual patter

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Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.