The Daily Planet Has a Wholly Owned Foreign Subsidiary in Malaysia

question 106

Essay

The Daily Planet has a wholly owned foreign subsidiary in Malaysia. The subsidiary earns 25 million ringgits per year before taxes in Malaysia. The foreign income tax rate is 30%. The subsidiary repatriates the entire aftertax profits in the form of dividends to the Daily Planet. The Canadian corporate tax rate is 40% of foreign earnings before taxes.
A) Compute aftertax cash flow to the Daily Planet from this investment (in ringgits). Before tax earnings (in ringgits) $\underline{\quad\quad}$

Foreign income tax at $30 \%$$\underline{\quad\quad}$
Earnings after foreign income taxes $\underline{\quad\quad}$

Dividends repatriated $\underline{\quad\quad}$
Gross Canadian taxes at $40^{\circ} \%$ of foreign earnings before taxes $\underline{\quad\quad}$

Foreign tax credit $\underline{\quad\quad}$
Net Canadian taxes payable $\underline{\quad\quad}$
Aftertax cash flow $\underline{\quad\quad}$
B) If the exchange rate is .40 ($/ringgits), what is the after tax cash flow in dollars?
C) CCA related cash flow is 3 million ringgits per year for five years for another Daily Planet investment in Malaysia. The cash flow will earn 10% per year. After five years, it will then be translated back to dollars at an exchange rate of .47 ($/ringgit). The Daily Planet applies a 15% discount rate to foreign cash flows. What is the present value (in dollars) of the CCA related cash flow?

• A) Compute aftertax cash flow to the Daily Planet from this investment (in ringgits). Before tax earnings (in ringgits)\(\underline{\quad\quad}\)
• Foreign income tax at \( 30 \% \)\(\underline{\quad\quad}\)
• Earnings after foreign income taxes\(\underline{\quad\quad}\)
• Dividends repatriated\(\underline{\quad\quad}\)
• Gross Canadian taxes at \( 40^{\circ} \% \) of foreign earnings before taxes\(\underline{\quad\quad}\)
• Foreign tax credit\(\underline{\quad\quad}\)
• Net Canadian taxes payable\(\underline{\quad\quad}\)
• Aftertax cash flow\(\underline{\quad\quad}\)

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