Exam 31: International Corporate Finance

Luther Industries,a U.S.firm.has a subsidiary in the United Kingdom.This year,the subsidiary reported and repatriated earnings before interest and taxes (EBIT) of £45 million.The current exchange rate is $1.86/£.The tax rate in the United Kingdom for this activity is 28%.Under U.S.tax codes,Luther is facing a 21% corporate tax rate on their earnings.What is Luther's U.S.tax liability on its U.K.subsidiary?

Use the following information to answer the question(s)below. Incorporated Tool,a U.S.firm,is considering its international tax situation.The corporate tax rate in the United States is currently 21%.Incorporated Tool has major operations in Ireland,where the tax rate is 12.5%,Japan where the tax rate is 40.7%,and Mexico,where the tax rate is 30.0%.Incorporated Tool's profits,which are fully and immediately repatriated,and foreign taxes paid for the current year are as follows: -Assuming that the Japanese and Mexican subsidiaries did not exist,the U.S.tax liability on the Irish subsidiary would be closest to:

What conditions cause the cash flows of a foreign project to be affected by exchange rate risk?

Use the information for the question(s)below. The current spot exchange rate,S,is $1.8862/£.Suppose that the yield curve in both countries is flat.The risk-free rate on dollars,r$,is 5.35% and the risk-free interest rate on pounds,r£,is 4.80%. -Using the covered interest parity condition,the calculated three-year forward rate F3 is closest to:

Which of the following statements regarding the tax climate prior to the TCJA of 2017 is FALSE?

Use the information for the question(s)below. Luther Industries,a U.S.Corporation,is considering a new project located in Great Britain.The expected free cash flows from the project are detailed below: You know that the spot exchange rate is S = 1.8862/£.In addition,the risk-free interest rate on dollars and pounds is 5.4% and 4.6% respectively.Assume that these markets are internationally integrated and the uncertainty in the free cash flow is not correlated with uncertainty in the exchange rate.You have determined that the dollar WACC for these cash flows is 10.2%. -What is the pound present value of the project?

Use the information for the question(s)below. You are a U.S.investor who is trying to calculate the present value of £5 million cash inflow that will occur one year in the future.The spot exchange rate is S = $1.8839/£ and the forward rate is F1 = $1.8862/£.The appropriate dollar discount rate for this cash flow is 5.32% and the appropriate £ discount rate is 5.24%. -The present value of the £5 million cash inflow computed by first converting into dollars and then discounting is closest to:

Use the information for the question(s)below. KT Enterprises,a U.S.import-export trading company,is considering its international tax situation.KT's U.S.tax rate is 21%.KT has significant operations in both Japan and Ireland.In Japan the current exchange rate is ¥118.4/$ and earnings in Japan are taxed at 41%.In Ireland the current exchange rate is $1.27/€ and earnings in Ireland are taxed at 12.5%.KT's profits,which are fully and immediately repatriated,and foreign taxes paid for the current year are shown here (in millions): -The amount of the taxes paid in dollars for the Japanese operations is closest to:

Luther Industries,a U.S.firm,has foreign assets valued at $120 million and foreign earnings before interest and taxes of $50 million.It pays a foreign tax at the rate of 5%.What is Luther's global intangible low tax income (GILTI)?

Use the following information to answer the question(s) below. Rearden Metal, a U.S. manufacturer, has made a purchase from d'Anconia Copper and is expecting a cash outflow of 2 million ARS (Argentine Pesos) in six months. The currency spot rate is $0.2500/ARS and the six-month forward rate is F6months = $0.2470/ARS. The appropriate annual discount rate for the Argentine Peso is 6.5% and the annual discount rate for the U.S. dollar is 4%. -The present value of Rearden Metal's cash outflow computed by first converting to dollars and then discounting the cash flow at the appropriate U.S.Dollar rate is closest to:

Consider the following equation: S × = The term in this equation is:

Use the information for the question(s)below. KT Enterprises,a U.S.import-export trading company,is considering its international tax situation.KT's U.S.tax rate is 21%.KT has significant operations in both Japan and Ireland.In Japan the current exchange rate is ¥118.4/$ and earnings in Japan are taxed at 41%.In Ireland the current exchange rate is $1.27/€ and earnings in Ireland are taxed at 12.5%.KT's profits,which are fully and immediately repatriated,and foreign taxes paid for the current year are shown here (in millions): -After the Japanese taxes are paid,the amount of the earnings before interest and after taxes in dollars from the Japanese operations is closest to:

Use the information for the question(s)below. KT Enterprises,a U.S.import-export trading company,is considering its international tax situation.KT's U.S.tax rate is 21%.KT has significant operations in both Japan and Ireland.In Japan the current exchange rate is ¥118.4/$ and earnings in Japan are taxed at 41%.In Ireland the current exchange rate is $1.27/€ and earnings in Ireland are taxed at 12.5%.KT's profits,which are fully and immediately repatriated,and foreign taxes paid for the current year are shown here (in millions): -The amount of the taxes paid in dollars for the Irish operations is closest to:

What conclusions can you make about the degree of international integration between the U.S.and Argentine markets?

Consider the following equation: S × = The term in this equation is:

Which of the following statements is FALSE?

The Tax Cut and Jobs Act of 2017 was designed to address all of the following concerns,EXCEPT:

Use the information for the question(s)below. Luther Industries,a U.S.Corporation,is considering a new project located in Great Britain.The expected free cash flows from the project are detailed below: You know that the spot exchange rate is S = 1.8862/£.In addition,the risk-free interest rate on dollars and pounds is 5.4% and 4.6% respectively.Assume that these markets are internationally integrated and the uncertainty in the free cash flow is not correlated with uncertainty in the exchange rate.You have determined that the dollar WACC for these cash flows is 10.2%. -Calculate the pound denominated cost of capital for Luther's project.

Consider the following equation: S × = The term F in this equation is:

Which of the following statements is FALSE?