A South African company is contemplating a new project in Nigeria. The project is expected to...
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A South African company is contemplating a new project in Nigeria. The project is expected to cost 1 000 million naira. The project is expected to generate 250 million naira for the first three years and then 300 million naira in the last three years. The current spot exchange rate is 13.80 naira per rand. The risk-free rate in South Africa is 7.8% and the risk-free rate in Nigeria is 9.3%. The required return on the South African rand is 14%. The company uses the home currency approach in evaluating foreign projects. The present value interest factors and forward exchange rates for years 1 to 6 are given below: Period PVIF 1 2 3 4 5 FER 0.87719. 14.00 0.76947 14.22 0.67497 14.43 0.59208 14.65 0.51937 14.87 Calculate the net present value of the project. (8 marks) A South African company is contemplating a new project in Nigeria. The project is expected to cost 1 000 million naira. The project is expected to generate 250 million naira for the first three years and then 300 million naira in the last three years. The current spot exchange rate is 13.80 naira per rand. The risk-free rate in South Africa is 7.8% and the risk-free rate in Nigeria is 9.3%. The required return on the South African rand is 14%. The company uses the home currency approach in evaluating foreign projects. The present value interest factors and forward exchange rates for years 1 to 6 are given below: Period PVIF 1 2 3 4 5 FER 0.87719. 14.00 0.76947 14.22 0.67497 14.43 0.59208 14.65 0.51937 14.87 Calculate the net present value of the project. (8 marks)
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Answer rating: 100% (QA)
Solution To calculate the net present value NPV of the project we need to discount the cash flows generated by the project using the appropriate discount rates First lets convert the project cost from ... View the full answer
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Managing Business Ethics Making Ethical Decisions
ISBN: 9781506388595
1st Edition
Authors: Alfred A. Marcus, Timothy J. Hargrave
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