Question

In: Finance

Golden Eagle Mining, a U.S.-based MNC has a foreign subsidiary that earns $1003000 before local taxes,...

Golden Eagle Mining, a U.S.-based MNC has a foreign subsidiary that earns $1003000 before local taxes, with all the after tax funds to be available to the parent in the form of dividends. The foreign income tax rate is 24 percent, the foreign dividend withholding tax rate is 10 percent, and the firm's U.S. tax rate is 29 percent. What are the funds available to the parent MNC if foreign taxes can be applied as a credit against the MNC's U.S. tax liability?

Solutions

Expert Solution

Income from foreing Subsidiary        1,003,000
Local tax rate @ 24%          (240,720)
After tax funds            762,280
Dividend tax 10.00%
Funds remitted to US 762280/(1+10%)
Funds remitted to US            692,982
Dividend tax              69,298
Income included in US            762,280
Tax @ 29%            221,061
Tax credit            (69,298)
Balance tax payable            151,763
So Funds available now=            610,517

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