Principles of Managerial Finance, Student Value Edition (15th Edition) (The Pearson Series in Finance)
Principles of Managerial Finance, Student Value Edition (15th Edition) (The Pearson Series in Finance)
15th Edition
ISBN: 9780134478166
Author: Chad J. Zutter, Scott B. Smart
Publisher: PEARSON
Question
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Chapter 19, Problem 19.1WUE
Summary Introduction

To determine: The net funds available to the parent corporation (a) if foreign taxes can be applied against the U.S. tax liability and (b) if they cannot.

Expert Solution & Answer
Check Mark

Answer to Problem 19.1WUE

The net funds available to the parent corporation (a) if foreign taxes can be applied against the U.S. tax liability is $31,350 and (b) if they cannot net funds available is $20,691.

Explanation of Solution

Given information:

Subsidiary pretax income: $55,000

Local tax: 40.00%

Dividend withholding tax: 5.00%

US tax rate: 34.00%

Calculation of the SA receipts of dividend:

Principles of Managerial Finance, Student Value Edition (15th Edition) (The Pearson Series in Finance), Chapter 19, Problem 19.1WUE , additional homework tip  1

Excel working:

Principles of Managerial Finance, Student Value Edition (15th Edition) (The Pearson Series in Finance), Chapter 19, Problem 19.1WUE , additional homework tip  2

Therefore, the SA receipt of debt is $31,250.

(a) if foreign taxes can be applied against the U.S. tax liability

Calculation of the net fund available to SA:

Principles of Managerial Finance, Student Value Edition (15th Edition) (The Pearson Series in Finance), Chapter 19, Problem 19.1WUE , additional homework tip  3

Excel working:

Principles of Managerial Finance, Student Value Edition (15th Edition) (The Pearson Series in Finance), Chapter 19, Problem 19.1WUE , additional homework tip  4

Therefore, net fund available to SA is $31,500.

(b) if they cannot.

Foreign taxes cannot be applied against the U.S. tax liability

Principles of Managerial Finance, Student Value Edition (15th Edition) (The Pearson Series in Finance), Chapter 19, Problem 19.1WUE , additional homework tip  5

Excel working:

Principles of Managerial Finance, Student Value Edition (15th Edition) (The Pearson Series in Finance), Chapter 19, Problem 19.1WUE , additional homework tip  6

Therefore, Net fund available to SA is $20,691.00

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