Question 3 Alpha Industries, a U.S. MNC, is contemplating undertaking foreign capital expenditure in South Africa. The initial cost of the project is ZAR10 000000 . The annual cash flows over the five year economic life of the project in ZAR are estimated to be 3000000 ; 4000000;5000000;6000000 and 7000000 , respectively. The parent firm's cost of capital in dollars is 9.5 percent. Long-run inflation is forecast to be 3 percent per annum in the U.S., and 7 percent in South Africa. The current spot foreign exchange rate is ZARUUS $=3.75. Determine the NPV for the project in US\$ by: 3.1 Calculating the NPV in ZAR using the ZAR equivalent cost of capital according to the Fisher Effect and then converting to US\$ at the current spot rate. $2291000 [9] 3.2 Converting all cash flows from ZAR to US\$ at Purchasing Power Parity forecasted exchange rates and then calculating the NPV at the dollar cost of capital. [12] 3.3What is the NPV in US dollars if the actual pattern of ZAR/US $ exchange rates 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? [7]