P19?1 Tax credits A U.S.-based MNC has a foreign subsidiary that earns $250,000 before

local taxes, with all the after-tax funds to be available to the parent in the form of

dividends. The applicable taxes consist of a 33% foreign income tax rate, a foreign

dividend withholding tax rate of 9%, and a U.S. tax rate of 34%. Calculate the net

funds available to the parent MNC if:

a. Foreign taxes can be applied as a credit against the MNC?s U.S. tax liability. b. No tax credits are allowed

P19?3 Exchange rates Fred Nappa is planning to take a wine-tasting tour through Italy this summer. The tour will cost 2,750 euros (?) and includes transportation, hotels, and a guide. Fred estimates that round-trip airfare from his home in North Carolina to Rome, Italy, will be $1,490; he also will incur another $300 (U.S.) in incidental travel expenses. Fred estimates the cost of meals in Italy to be about ?500, and he will take an additional $1,000 to cover miscellaneous expenditures. Currently, the exchange rate is US$1.3411/?1.00 (or ?.7456/US$1.00). a. Determine the total dollar cost of the trip to Italy. b. Determine the amount of euros (?) Fred will need to cover meals and miscellaneous expenditures.

P19?5 Euromarket investment and fund raising A U.S.-based multinational company has two subsidiaries, one in Mexico (local currency, Mexican peso, MP) and one in Japan (local currency, yen, ). Forecasts of business operations indicate the following short-term financing position for each subsidiary (in equivalent U.S. dollars): Mexico: $80 million excess cash to be invested (lent) Japan: $60 million funds to be raised (borrowed) The management gathered the following data:

Currency Item US$ MP Spot exchange rates MP 11.60/US$ 108.25/US$ Forecast percent change -3.0% +1.5% Interest rates Nominal Euromarket 4.00% 6.20% 2.00% Domestic 3.75% 5.90% 2.15% Effective Euromarket ??? ??? ??? Domestic ??? ??? ???

Determine the effective interest rates for all three currencies in both the Euromarket and the domestic market, and then indicate where the funds should be invested and raised. (Note: Assume that because of local regulations, a subsidiary is not permitted to use the domestic market of any other subsidiary.)

P19-1 Tax credits A U.S.-based MNC has a foreign subsidiary that earns $250,000 before local taxes, with all the after-tax funds to be available to the parent in the form of dividends. The applicable taxes consist of a 33% foreign income tax rate, a foreign dividend withholding tax rate of 9%, and a U.S. tax rate of 34%. Calculate the net funds available to the parent MNC if: a. Foreign taxes can be applied as a credit against the MNC's U.S. tax liability. b. No tax credits are allowed P19-3 Exchange rates Fred Nappa is planning to take a wine-tasting tour through Italy this summer. The tour will cost 2,750 euros () and includes transportation, hotels, and a guide. Fred estimates that round-trip airfare from his home in North Carolina to Rome, Italy, will be $1,490; he also will incur another $300 (U.S.) in incidental travel expenses. Fred estimates the cost of meals in Italy to be about 500, and he will take an additional $1,000 to cover miscellaneous expenditures. Currently, the exchange rate is US$1.3411/1.00 (or .7456/US$1.00). a. Determine the total dollar cost of the trip to Italy. b. Determine the amount of euros () Fred will need to cover meals and miscellaneous expenditures. P19-5 Euromarket investment and fund raising A U.S.-based multinational company has two subsidiaries, one in Mexico (local currency, Mexican peso, MP) and one in Japan (local currency, yen, ). Forecasts of business operations indicate the following short-term financing position for each subsidiary (in equivalent U.S. dollars): Mexico: $80 million excess cash to be invested (lent) Japan: $60 million funds to be raised (borrowed) The management gathered the following data: Determine the effective interest rates for all three currencies in both the Euromarket and the domestic market, and then indicate where the funds should be invested and raised. (Note: Assume that because of local regulations, a subsidiary is not permitted to use the domestic market of any other subsidiary.)