RCO, a transnational company sets a wholly owned subsidiar ySubA in coun try X, X's income tax rate is 25%, withholding tax rate is 10%. Two choices to invest to its SubA: (A) RCo invested 1500 into SubA. (As equity investment) (B) Lend 1500 to SubA, the interest rate is 12%. (As credit investment) Assume that SubA's yearly income is 1200 and expenses are 500 before t his investment. The amount of dividend paid to RCo. is 180. Required: (1) Compute the total group's total tax burden under the above two choic es. (2) Compare the two results and then explain why there are dif érent result s of total tax in different investments. (unit: $thousand)

RCO, a transnational company sets a wholly owned subsidiar ySubA in coun try X, X's income tax rate is 25%, withholding tax rate is 10%. Two choices to invest to its SubA: (A) RCo invested 1500 into SubA. (As equity investment) (B) Lend 1500 to SubA, the interest rate is 12%. (As credit investment) Assume that SubA's yearly income is 1200 and expenses are 500 before t his investment. The amount of dividend paid to RCo. is 180. Required: (1) Compute the total group's total tax burden under the above two choic es. (2) Compare the two results and then explain why there are dif érent result s of total tax in different investments. (unit: $thousand)

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter10: Forecasting Financial Statement

Section: Chapter Questions

Problem 8QE

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