Complete the following problems from Chapter 19 in the textbook:
Follow these instructions for completing and submitting your assignment:
- Do all work in Excel. Do not submit Word files or *.pdf files.
- Submit a single spreadsheet file for this assignment, do not submit multiple files.
- Place each problem on a separate spreadsheet tab.
- Label all inputs and outputs and highlight your final answer.
- Follow the directions in the “Guidelines for Developing Spreadsheets” located in the Course Materials.
19–1 Tax credits A U.S.-based MNC has a foreign subsidiary that earns $250,000 before
local taxes, with all the after-tax funds to be available to the parent in the form of
dividends. The applicable taxes consist of a 33% foreign income tax rate, a foreign
dividend withholding tax rate of 9%, and a U.S. tax rate of 34%. Calculate the net
funds available to the parent MNC if:
a. Foreign taxes can be applied as a credit against the MNC’s U.S. tax liability.
b. No tax credits are allowed.
P19–3 Exchange rates Fred Nappa is planning to take a wine-tasting tour through Italy
this summer. The tour will cost 2,750 euros (€) and includes transportation, hotels,
and a guide. Fred estimates that round-trip airfare from his home in North Carolina
to Rome, Italy, will be $1,490; he also will incur another $300 (U.S.) in incidental
travel expenses. Fred estimates the cost of meals in Italy to be about €500, and he
will take an additional $1,000 to cover miscellaneous expenditures. Currently, the
exchange rate is US$1.3411/€1.00 (or €.7456/US$1.00).
a. Determine the total dollar cost of the trip to Italy.
b. Determine the amount of euros (€) Fred will need to cover meals and miscellaneous
P19–5 Euromarket investment and fund raising A U.S.-based multinational company has
two subsidiaries, one in Mexico (local currency, Mexican peso, MP) and one in Japan
(local currency, yen, °Õ). Forecasts of business operations indicate the following
short-term financing position for each subsidiary (in equivalent U.S. dollars):
Mexico: $80 million excess cash to be invested (lent)
Japan: $60 million funds to be raised (borrowed)
The management gathered the following data:
Item US$ MP
Spot exchange rates MP 11.60/US$ °Õ108.25/US$
Forecast percent change 23.0% 11.5%
Euromarket 4.00% 6.20% 2.00%
Domestic 3.75% 5.90% 2.15%
Euromarket ——— ——— ———
Domestic ——— ——— ———
Determine the effective interest rates for all three currencies in both the Euromarket
and the domestic market, and then indicate where the funds should be invested and
raised. (Note: Assume that because of local regulations, a subsidiary is not permitted
to use the domestic market of any other subsidiary.)