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Question: The Daily Planet has a wholly owned foreign subsidiary in Brazil. The subsidiary earns 30 million reals per year before taxes in Brazil. The foreign income tax rate is 30%. The subsidiary repatriates the entire after-tax profits in the form of dividends to the Daily Planet. The U.S. corporate tax rate is 40% of foreign earnings before taxes.

a) Compute after-tax cash flow to the Daily Planet from this investment (in reals).

b) If the exchange rate is 56 ($/reals), what is the after-tax cash flow in dollars?

c) Depreciation related cash flow is 2 million reals per year for five years for another Daily Planet investment in Brazil. The exchange rate is expected to be 59 ($/reals). The Daily Planet applies a 15% discount rate to foreign cash flows. What is the present value (in dollars) of the depreciation-related cash flow?

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M92602566

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