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Corporate finance week 14

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UNIVERSITY OF THE CUMBERLANDS
CORPORATE FINANCE (BADM-734-M20)
WEEK 14
International Corporate Finance

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INTERNATIONAL CORPORATE FINANCE
Teck systems Inc., a Texas-based manufacturer of computer equipment, is considering the
establishment of a manufacturing plant in Zana, a small West African country with a
population of about 29.6 million. The country’s currency is the Cedi and it is traded against
most foreign currencies including the U.S. dollar. The exchange rate between the Cedi and
the U.S. dollar is quoted in the forex market as:
U.S. $1 = ZC5.50
The financial team of Teck Systems Inc. has gathered that Zana is a democratic country
with stable economic, social, and political environments. Although, the value of the Cedi in
the foreign exchange market has remained stable for the past three years, next year’s
projection depicts an unfavorable economic situation because of the Covid-19 pandemic
and its adverse effect on emerging economies. A quick internet research on Zana shows
that the projected budget deficits, interest rate, inflation, and trade deficits may deteriorate
and cause a gradual depreciation of the Cedi against the U.S. dollar. Inflation is expected to
increase from 6% to 9%, unemployment rate is expected to increase as well. The increase
in unemployment rate is likely to lead to political unrests and less demand for goods and
services. The results of the google search on Zana are shown below:
Rule of law: Zana’s secured interest in property rights is recognized and enforced,
although the process of getting clear title over land and other property is difficult,
complicated, and lengthy. There is bribery and corruption in the judicial system and the
government has some power and control over the judiciary and the legislature.
Government size & tax rates: The top personal and corporate income tax rate is 35%.
Other taxes include value-added, property, and capital gain taxes. The overall government
spending is 25% of GDP, a rise of 2.7%. The government spending is 70% of revenue and
25% of the revenue is spent on financing foreign loans.
Regulatory efficiency: Some progress has been made in enabling business environment, but
financial services, electricity, and water supply remain expensive. The cost of doing
business in Zana is expensive although the government supports foreign companies and
gives them incentives.

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UNIVERSITY OF THE CUMBERLANDS CORPORATE FINANCE (BADM-734-M20) WEEK 14 International Corporate Finance INTERNATIONAL CORPORATE FINANCE Teck systems Inc., a Texas-based manufacturer of computer equipment, is considering the establishment of a manufacturing plant in Zana, a small West African country with a population of about 29.6 million. The country’s currency is the Cedi and it is traded against most foreign currencies including the U.S. dollar. The exchange rate between the Cedi and the U.S. dollar is quoted in the forex market as: U.S. $1 = ZC5.50 The financial team of Teck Systems Inc. has gathered that Zana is a democratic country with stable economic, social, and political environments. Although, the value of the Cedi in the foreign exchange market has remained stable for the past three years, next year’s projection depicts an unfavorable economic situation because of the Covid-19 pandemic and its adverse effect on emerging economies. A quick internet research on Zana shows that the projected budget deficits, interest rate, inflation, and trade deficits may deteriorate and cause a gradual depreciation of the Cedi against the U.S. dollar. Inflation is expected to increase from 6% to 9%, unemployment rate is expected to increase as well. The increase in unemployment rate is likely to lead to political unrests and less demand for goods and services. The results of the google search on Zana are shown below: Rule of law: Zana’s secured interest in property rights i ...
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