1. Wheelco, a foreign corporation, manufactures motorcycles for sale worldwide. Wheelco markets its motorcycles in the United States through Wheely, a wholly-owned U.S. marketing subsidiary that derives all of its income from its U.S. sales operation. Wheelco also has a creditor interest in Wheely, such that Wheely makes annual interest payments of $60 million to Wheelco.

The results from Wheely's first year of operations are as follows: Gross profits..................... $175 million

Interest expense(paid to Wheelco).... $(60million)

Depreciation expense $(30 million) Other operating expenses. $(85 million) Net income......... $0 million

Assume that the applicable tax treaty exempts Wheelco's interest income from U.S. withholding tax. Compute Wheely's interest expense deduction.