Avon is a U.S.-based direct seller of a wide array of products. Avon markets leadingbeauty, fashion, and home products in more than 100 countries. As part of the training in its corporate treasury offices, it has its interns build a spreadsheet analysis of the following hypothetical subsidiary earnings/distribution analysis. Use the tax analysis presented below for your basic structure,

Baseline Values	Case 1		Case 2
a Foreign corporate income tax rate	28%		42%
b U.S. corporate income tax rate	38%		38%
c Foreign dividend withholding tax rate	15%		0%
d U.S. ownership in foreign firm	100%		100%
e Dividend payout rate of foreign firm	100%		100%
Foreign Subsidiary Tax Computation
1 Taxable income of foreign subsidiary	$3,200,000		$3,200,000
2 Foreign corporate income tax	(896,000)		(1,344,000)
3 Net income available for distribution	$2,304,000		$1,856,000
4 Retained earnings	0		0
5 Distributed earnings	2,304,000		1,856,000
6 Distribution to U.S. parent company	2,304,000		1,856,000
7 Withholding taxes on dividends	345,600		0
8 Net remittance to U.S. parent	$1,958,400		$1,856,000
U.S. Corporate Tax Computation on Foreign Income
9 Dividend received before withholding	$2,304,000		$1,856,000
10 Add back foreign deem-paid tax	896,000		1,344,000
11 Grossed-up foreign dividend	$3,200,000		$3,200,000
12 Tentative U.S. liability	1,216,000		1,216,000
13 Less credit for foreign taxes
a foreign income taxes paid	(896,000)		(1,344,000)
b foreign withholding taxes paid	(345,600)		(0)
c total	($1,241,600)		($1,344,000)
14 Additional U.S. taxes due	$0		$0
15 Excess foreign tax credits	25,600		128,000
16 After-tax income from foreign subsidiary	$1,984,000		$1,984,000

a. What is the total tax payment, foreign and domestic combined, for this income?

b. What is the effective tax rate paid on this income by the U.S.-based parent company?

c. What would be the total tax payment and effective tax rate if the foreign corporate tax rate was 42% and there were no withholding taxes on dividends?

d. What would be the total tax payment and effective tax rate if the income was earned by a branch of the U.S.corporation?