1.Detroit Piston Co. has a subsidiary in Honduras. Honduras has a 25% corporate tax rate. The United States has a 35% tax rate. Assuming that Detroit Piston Co. remits their Honduran profits to the U.S. headquarters each year, what is the total combined percentage corporate tax rate that they will pay to Honduras and the U.S.?

a. 0% b. 25% c. 35% d. 60% e. 68.75%

2.HuiXia Industries operates in the US and Taiwan. HuiXia is deciding whether to take a 6.5% loan in the US or a 6.5% loan in Taiwan. Suppose that Quinn expects inflation to be higher in the US relative to Taiwan. All else the same (do explain with the option)

a. HuiXia should take the Taiwan based loan as it is less costly. b. HuiXia should take the US based loan as it is less costly. c. HuiXia is indifferent since they both have a 6.5% interest rate