The Daily Planet Has a Wholly Owned Foreign Subsidiary in Malaysia

Question 120

The Daily Planet has a wholly owned foreign subsidiary in Malaysia. The subsidiary earns 25 million ringgits per year before taxes in Malaysia. The foreign income tax rate is 30%. The subsidiary repatriates the entire aftertax profits in the form of dividends to the Daily Planet. The Canadian corporate tax rate is 40% of foreign earnings before taxes. A) Compute aftertax cash flow to the Daily Planet from this investment (in ringgits). img B) If the exchange rate is.40 ($/ringgits), what is the after tax cash flow in dollars? C) CCA related cash flow is 3 million ringgits per year for five years for another Daily Planet investment in Malaysia. The cash flow will earn 10% per year. After five years, it will then be translated back to dollars at an exchange rate of .47 ($/ringgit). The Daily Planet applies a 15% discount rate to foreign cash flows. What is the present value (in dollars) of the CCA related cash flow?