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Question 1 Firm DFG plans to open a foreign subsidiary through which to sell its manufactured goods in the European market. It must decide between

Question 1
Firm DFG plans to open a foreign subsidiary through which to sell its manufactured goods in the European market. It must decide between locating the subsidiary in Country A or Country B. If the subsidiary operates in Country A, its gross receipts from sales will be subject to a 2 percent gross receipts tax. If the subsidiary operates in Country B, its net profits will be subject to a 24 percent income tax. However, both Countries tax laws have a special provision to attract foreign investors: No foreign subsidiary is subject to the income tax for the first two years of operations in Country B and first 3 years in country A.
DFG projects the following annual operating results for the two locations (in thousands of dollars):
Gross receipts from sales: Country A $220,000, Country B $220,000
Cost of sales: Country A 120,000, Country B 120,000
Operating expenses: Country A 44,000 Country B,30,000
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