To kick start its economy, Country X is offering subsidised loans to Australian companies willing to set up operations there. The loan is $25 million at 3% when the market interest rate for such an investment is 8% The loan principal is to be paid off in five equal annual instalments.

1, What is the before tax value of this interest subsidy?

2.the projected before-tax income from thw plant in Country X is $1 million annally with the finst set of cashflows arriving at the end of Year 1. The corporate tax rate in Country X is 25% and it also has a 20s dividend withholding tax. Country X, confers a (corporate) tax holiday on the plant's income for the fint five years. If the Australian firm remits all the dividends that it receives back to Australia, how much is the (corporate) tax holiday, in the form of tax credits, worth to the firm?

Note: The Australian corporate tax rate is 30 Country X's tax nales do not allow for a tax holiday on dividends

3. The Tax Office of Arcadia (a fictitious coutry) just announced that it weuld scrap the 20 witholding tax imposed on interest payments paid to foreign investors holding Arcadian govemment bonds. Until now, investors from countries with a double-taxation agreement with Arcadia had to wait for two years to claim back a portion of the interest that was withheld. What might be the reasons) for Arcadia to eliminate this tax? (Max 200 wonds]