1) You wish to purchase the new sports car from Muscle Motors for= $79,000. Contract is in form of 48-month annuity due at 7.30% APR. Determine the monthly payment?
2) Omega Industries, U.S MNC, is contemplating making the foreign capital expenditure in SA. Initial cost of project is= ZAE10000. Annual cash flows over the 5 year economic life of project in ZAR are evaluated to be 3000, 4000, 5000, 6000 and 7000. Parent firm's cost of capital in dollars is 9.5%. Long run inflation is predicted to be 3% per annum in U.S and 7 percent in SA. Present spot foreign exchange rate is= ZAR/USD = 3.75. Find out the NPV for the project in USD by:
a) Computing NPV in ZAR by using ZAR equivalent cost of capital according to Fischer Effect and converting to USD at present spot rate.
b) Converting all cash flows from ZAR to USD at buying power parity predict exchange rates and then computing the NPV at dollar cost of capital.
c) Determine the NPV in dollars if actual pattern of ZAR/USD exchange rate 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?