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:

Foregone Resource

The benefits or income lost when one option is chosen over another, essentially another term for opportunity cost but often used in the context of tangible resources.

Cash Flow Estimation

The process of predicting the amount of money that will move in and out of a business in a future period.

Net Working Capital

The difference between a company's current assets and current liabilities, indicating short-term financial health.

Accounts Receivable

Money owed to a business by its customers for goods or services delivered but not yet paid for.