Question
Americo's Earnings and Global Taxation. Americo is a U.S.-based multinational manufacturing firm with wholly-owned subsidiaries in Brazil, Germany, and China, in addition to domestic operations
Americo's Earnings and Global Taxation. Americo is a U.S.-based multinational manufacturing firm with wholly-owned subsidiaries in Brazil, Germany, and China, in addition to domestic operations in the United States. Americo is traded on the NASDAQ. Americo currently has 644,000 shares outstanding. The basic operating characteristics of the various business units are as follows:
| Business Performance (000s) | U.S. Parent (US$) | Brazilian Subsidiary (R$) | German Subsidiary (€) | Chinese Subsidiary (¥) | ~DT1 |
| Earnings before taxes (EBT) | 4600 | 6210 | 4430 | 2410 | |
| Corporate income tax rate | 35% | 25% | 40% | 30% | |
| Average exchange rate for the period | 1.8237/$ | 0.7207/$ | 7.7801/$ |
Americo must pay corporate income tax in each country in which it currently has operations.
a. After deducting taxes in each country, what are Americo's consolidated earnings and consolidated earnings per share in U.S. dollars?
All MNEs attempt to minimize their global tax liabilities. Answer the following questions regarding Americo's global tax liabilities:
b. What is the total amountin U.S. dollarsthat Americo is paying across its global business in corporate income taxes?
c. What is Americo's effective tax rate (total taxes paid as a proportion of pre-tax profit)?
d. What would be the impact on Americo's EPS and global effective tax rate if Germany instituted a corporate tax reduction to 28%, and Americo's earnings before tax in Germany rose to 5,080,000?
| U.S. Parent | ||
| Business Performance (000s) |
| Company |
| Earnings before taxes (local currency) | $ | |
| Less corporate income taxes | $ |
|
| Net profits of individual subsidiary | $ |
|
|
|
| |
| Avg exchange rate for the period (fc/$) |
|
|
| Net profits of individual subsidiary | $ |
|
|
| Brazilian |
|
| Subsidiary |
| R$ |
|
| R$ | 1 |
| R$ |
|
|
|
|
|
|
|
| $ |
| German | |
|
| Subsidiary |
|
| |
|
| |
|
| |
|
|
|
|
|
|
| $ |
| Chinese | |
|
| Subsidiary |
|
| |
|
| |
|
| |
|
|
|
|
| |
| $ |
|
The consolidated earnings per share is
$14.7014.70.
(Round to the nearest cent.)
b. What is the total amountin U.S.
dollarsthat Americo is paying across its global business in corporate income taxes?
Calculate the corporate income taxes from each country in U.S. dollars below:(Round to two decimal places.)
| U.S. Parent | Brazilian | German | Chinese | |||||
|
|
| Company |
| Subsidiary |
| Subsidiary |
| Subsidiary |
| Tax payments by country (000s) | $ | $ |
| $ |
| $ |
|
Total global tax bill in U.S. dollars is _____ (000s)
(Round to two decimal places.)
c. What is Americo's effective tax rate (total taxes paid as a proportion of pre-tax profit)?
Calculate the earnings before taxes from each country in U.S. dollars below:(Round to two decimal places.)
| U.S. Parent | Brazilian | German | Chinese | |||||
|
|
| Company |
| Subsidiary |
| Subsidiary |
| Subsidiary |
| EBT by country (000s) | $ |
| $ |
| $ |
| $ |
|
The effective tax rate is
nothing%.
(Round to one decimal place.)
d. What would be the impact on Americo's EPS and global effective tax rate if Germany instituted a corporate tax reduction to
28%,
and Americo's earnings before tax in Germany rose to
5,080,000?
Calculate the business performance per country below:(Round to two decimal places. Round exchange rates to four decimal places.)
| U.S. Parent | ||
| Business Performance (000s) |
| Company |
| Earnings before taxes (local currency) | $ |
|
| Less corporate income taxes | $ |
|
| Net profits of individual subsidiary | $ |
|
|
|
| |
| Avg exchange rate for the period (fc/$) |
|
|
| Net profits of individual subsidiary | $ |
|
|
| Brazilian |
|
| Subsidiary |
| R$ |
|
| R$ |
|
| R$ |
|
|
|
|
|
|
|
| $ |
|
| German | |
|
| Subsidiary |
|
| |
|
| |
|
| |
|
|
|
|
|
|
| $ |
|
| Chinese | |
|
| Subsidiary |
|
| |
|
| |
|
| |
|
|
|
|
| |
| $ |
|
The consolidated earnings per share is
$nothing.
(Round to the nearest cent.)
The EPS change from baseline is
nothing%.
(Round to one decimal place.)
Calculate the corporate income taxes from each country in U.S. dollars below:(Round to two decimal places.)
| U.S. Parent | Brazilian | German | Chinese | |||||
|
|
| Company |
| Subsidiary |
| Subsidiary |
| Subsidiary |
| Tax payments by country (000s) | $ |
| $ |
| $ |
| $ |
|
Total global tax bill in U.S. dollars is (000s)
$nothing.
(Round to two decimal places.)
Calculate the earnings before taxes from each country in U.S. dollars below:(Round to two decimal places.)
| U.S. Parent | Brazilian | German | Chinese | |||||
|
|
| Company |
| Subsidiary |
| Subsidiary |
| Subsidiary |
| EBT by country (000s) | $ |
| $ |
| $ |
| $ |
|
The effective tax rate is
nothing%.
(Round to one decimal place.)
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