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.
Answer to Problem 19.1WUE
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:
Excel working:
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:
Excel working:
Therefore, net fund available to SA is $31,500.
(b) if they cannot.
Foreign taxes cannot be applied against the U.S. tax liability
Excel working:
Therefore, Net fund available to SA is $20,691.00
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Chapter 19 Solutions
Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
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