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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
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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 percent gross receipts tax. If the subsidiary operates in Country B its net profits will be subject to a 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 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 $ Country B $
Cost of sales: Country A Country B
Operating expenses: Country A Country B
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