FINANCE-$250,000 Before local taxes 33% Foreign tax rate 9% Foreign dividend witholding 34% U.S tax rate

QUESTION

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LG 1

$250,000
Before local taxes

33%
Foreign tax rate

9%
Foreign dividend witholding

34%
U.S tax rate

a.
$250,000
Before local taxes

$82,500
Foreign tax rate

$167,500
Dividend declared

$15,075
Foreign dividend witholding

$152,425
MNC’s receipt of dividends

$250,000
MNC income

$85,000

U.S tax rate

$97,575
$97,575
Total foreign tax paid

0
U.S. tax due

$152,425
Net funds available

b.
$250,000
Before local taxes

$82,500
Foreign tax rate

$167,500
Dividend declared

$15,075
Foreign dividend witholding

$152,425
MNC’s receipt of dividends

$51,825
U.S. tax liabilities

$100,601

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LG 3

a.
$3,688
Cost of trip (2,750x$1.3411)

$1,490
Round trip

$300
Travel expenses

$671
Meals (500x$1.3411)

$1,000
Miscellaneous

$7,149
Total

b.
500.0
Meals

745.6
Miscellaneous ($1,000×0.7456)

1245.6
Total (euros)

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LG 5

Item
US
MP
Y

Spot exchange rates

MP 11.60/US$
108.25/US$

Forecast % change

3.00%
1.50%

Interest rates

Nominal

Euromarket
4.00%
6.20%
2.00%

Domestic
3.75%
5.90%
2.15%

Effective

Euromarket
4.00%
3.20%
3.50%

Domestic
3.75%
2.90%
3.65%

For
investing the highest available effective rate of interest is 4.00% in the
US$ Euromarket. The Mexico subsidiary should invest the $80 million in
Mexican Peso in U.S. dollars. To raise funds the cheapest source open to the
Japanese subsidiary is the 3.0% effective rate for the Mexican Peso in the
Euromarket. The subsidiary should raise the $60 million in Mexican Peso in
the Euromarket.

ANSWER:

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