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1. ForParentCo plans to locate a new factory in the United States. Wanting to limit its liability in the U.S. against litigation, ForParentCo will structure the new facility as a wholly owned U.S. subsidiary, DomSub. ForParentCo anticipates financing DomSub with an equity investment. ForParentCo projects that in DomSub's first year of operations, DomSub will generate $20 million of taxable income, all from active U.S. manufacturing activities. In conducting this analysis, further assume the following:
   • The U.S. corporate tax rate is 21%.
   • ForParentCo's only item of income during that first year is income derived from DomSub.
   • Foreign country F taxes its residents on its worldwide income, with the sole exemption for dividends received from corporations outside their country (these dividends would be exempt from tax). Although country F offers a direct credit for income taxes paid in countries outside of their country, a credit is not available for taxes paid to other countries related to dividends received from companies that reside in those countries (deemed paid or withheld).
   • The corporate income tax rate in foreign country F is 23%.
   • FORco will need $10 million in post-tax cash to fund its foreign operations.
   • Country F has a tax treaty with the United States that results in U.S. withholding tax of 5% on dividends and 0% on interest.

ForParentCo does have the opportunity to structure the operations with up to $50 million of debt from ForParentCo to DomSub, which would incur an annual interest payment of $5 million. ForParentCo wants cash after-tax of $10 million to fund foreign operations.

Which capitalization method provides the lowest tax cost of the repatriation?