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). Use the table below.
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?