The Daily Planet has a wholly owned foreign subsidiary in Brazil. The subsidiary earns 30 million reals per year before taxes in Brazil. The foreign income tax rate is 30%. The subsidiary repatriates the entire after-tax profits in the form of dividends to the Daily Planet. The U.S. corporate tax rate is 40% of foreign earnings before taxes.
a) Compute after-tax cash flow to the Daily Planet from this investment (in reals). Use the table below.
b) If the exchange rate is.56 ($/reals), what is the after-tax cash flow in dollars?
c) Depreciation related cash flow is 2 million reals per year for five years for another Daily Planet investment in Brazil. The exchange rate is expected to be.59 ($/reals). The Daily Planet applies a 15% discount rate to foreign cash flows. What is the present value (in dollars) of the depreciation related cash flow?
Definitions:
Marginal Revenue
The additional income generated from the sale of one more unit of a product or service.
Total Product
The overall quantity of goods or services produced by a firm within a specific period.
Average Variable Costs
The total variable costs of production divided by the quantity of output produced.
Workers
Individuals engaged in any form of employment, contributing labor for the production of goods or services.
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