Suppose an MNC Subsidiary Buys 100 Input Units from Its

question 9

Short Answer

Suppose an MNC subsidiary buys 100 input units from its parent at a price of $2 each.It has $300 in additional production costs,and sells its 100 units of output for $6 to the MNC.It pays a 25% local profit tax.The MNC sells the output at home for $8,and its cost of producing inputs is $1.It pays a profit tax of 20% at home on repatriated profits.What is the subsidiary net profit? Assume no selling costs at home.What is the MNC's total profit from the operation?

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Definitions:

Franchiser

The company that sells a franchise.