A firm has $200 in sales in the home country and $400 in sales in the host country. It incurs $100 in production costs in each country. In addition, it incurs $100 in research costs.

All research is done in the host country. The home countrys tax on domestically earned profits is 30%. Calculate the firms after tax profits without transfer pricing (i.e. no payments are made between the parent and the subsidiary for research expenses) when:

A) the host tax is 40% and exemptions are used.

B) the host tax is 40%, the home tax on foreign earned profits is 30%, and credits

are used.