Question: Delta Company, a U.S. MNC, is contemplating making a foreign capital expenditure in South Africa. The initial cost of the project is ZAR11,400. The annual

Delta Company, a U.S. MNC, is contemplating making a foreign capital expenditure in South Africa. The initial cost of the project is ZAR11,400. The annual cash flows over the five-year economic life of the project in ZAR are estimated to be 3,420, 4,420, 5,410, 6,400, and 7,350. 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.

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