Peninsula Technologies Co. is a U.S. firm that sells electronic equipment. One of its foreign subsidiaries had $3.4 m of taxable income in the fiscal year.

Calculate what the foreign and U.S. taxes would be on this income in the two cases presented below:

Baseline Values : Case 1 /Case 2

a. Foreign corporate income tax rate 28% / 40%

b. U.S. corporate income tax rate 35% / 35%

c. Foreign dividend withholding tax rate 0% / 10%

d. U.S. ownership in foreign firm 100% / 100%

e. Dividend payout rate of foreign firm 100% / 100%

1). What are the total taxes paid and the effective tax rate in both cases?

2) If the foreign income is not repatriated to the U.S., what would be the total taxes paid and the effective tax rate?