You are considering a project in South Africa which has an initial cost of R385,000. The project is expected to return a one-time payment of R428,900 four years from now. The risk-free rate of return is 3.5 percent in the U.S. and 2.4 percent in South Africa. The inflation rate is 4 percent in the U.S. and 3 percent in South Africa. Currently, you can buy R10.48 for $1. How much will the payment of R428,900 be worth in U.S. dollars four years from now?

Question

Quizplus · Accepted Answer

The correct answer is A.The payment of R428,900 will be worth $42,777 in U.S. dollars four years from now.To calculate this, we need to first convert the payment to U.S. dollars using the current exchange rate of R10.48 per $1. This gives us a value of $40,960.Next, we need to adjust this value for inflation in both the U.S. and South Africa. Using the inflation rates of 4 percent in the U.S. and 3 percent in South Africa, we get a value of $42,777.

You Are Considering a Project in South Africa Which Has