Assume That U

question 35

Multiple Choice

Assume that U.S.MNE A earns $100,000 of foreign source income, that the tax rate in the foreign country is 40 percent, and that the tax rate in the United States is 35 percent.How much total (both domestic and foreign) tax would the company pay on that foreign source income, assuming that the tax credit principle applies?

• A)$40,000
• B)$35,000
• C)$75,000
• D)$5,000

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Definitions:

Stand-Alone Project

In capital budgeting, a project with no competition either for the task it is to accomplish or for resources.

Cost of Capital

The rate of return a company must pay to its investors for the use of their capital, essentially the cost of financing and investing in the company's assets.

NPV

Net present value. A capital budgeting technique that rates projects according to the total present value of all their associated cash flows. The higher the total or net present value, the better.

Capital Budgeting Decision

The process by which a business determines whether projects such as investments in equipment or new products are worth pursuing.