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Calculate the npv of the year zero

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Echo Inc. which has a 21 percent U.S. tax rate, plans to expand Its business Into Country J. It could open a branch office, or it could create a foreign subsidiary In Country J. The branch office would generate $5.000,000 income in year 0. The foreign subsidiary would incur Incremental legal costs and, as a result. would generate only $4,750.000 income in year 0. This Income would be taxed at Country J's 15 percent corporate rate. Any repatriation of the subsidiarys earnings would qualify for the 100 percent dividends-received deduction.

Question 1: Assume none the subsidiary's earnings would be considered GILT! or subpart F Income, calculate the NPV of the Year 0 after-tax foreign source Income from opening a branch office or forming a foreign subsidiary.

Question 2: Should Echo open the branch office or form the subsidiary to maximize year 0 after-tax foreign earnings?

Reference no: EM132783739

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