The Daily Planet Has a Wholly Owned Foreign Subsidiary in Malaysia.The

question 111

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).
$\begin{array}{llcc} \text {Before tax earnings (in ringgits) } &\underline{\quad\quad\quad} \\ \text { Foreign income tax at \(30 \%\) } &\underline{\quad\quad\quad} \\ \text { Earnings after foreign income taxes } &\underline{\quad\quad\quad} \\ \text { Dividends repatriated} &\underline{\quad\quad\quad}\\ \text {Gross Canadian taxes at \(40 \%\) of foreign } &\\ \text { earnings before taxes } &\underline{\quad\quad\quad}\\ \text { Foreign tax credit } &\underline{\quad\quad\quad}\\ \text {Net Canadian taxes payable } &\underline{\quad\quad\quad}\\ \text {Aftertax cash flow } &\underline{\quad\quad\quad}\end{array}$

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).
• \(\begin{array}{llcc}
• \text {Before tax earnings (in ringgits) } &\underline{\quad\quad\quad} \\
• \text { Foreign income tax at \(30 \%\) } &\underline{\quad\quad\quad} \\
• \text { Earnings after foreign income taxes } &\underline{\quad\quad\quad} \\
• \text { Dividends repatriated} &\underline{\quad\quad\quad}\\
• \text {Gross Canadian taxes at \(40 \%\) of foreign } &\\
• \text { earnings before taxes } &\underline{\quad\quad\quad}\\
• \text { Foreign tax credit } &\underline{\quad\quad\quad}\\
• \text {Net Canadian taxes payable } &\underline{\quad\quad\quad}\\
• \text {Aftertax cash flow } &\underline{\quad\quad\quad}
• \end{array}\)
• 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?