Chapter 10, Problem 48QA

Billabong Fashion is based in Melbourne, Australia. Billabong Fashion has a subsidiary in Shanghai that generates RMB85 million in annual sales. Any earnings generated by the subsidiary are reinvested to support its operations. Belle Fashion is the close competitor of Billabong Fashion. Belle Fashion is a local Australian company located in Japan with annual export sale to Malaysia of about MYR 45 million. Based on the information provided, which firm is subject to a higher degree of translation exposure? Justify your answer with thorough explanation on both companies.

a) Mashimoto Electric is based in Osaka, Japan. Mashimoto Electric has a subsidiary inSingapore that generates SGD 50 million in annual sales. Any earnings generated by thesubsidiary are reinvested to support its operations. Benzai Electric is the close competitor ofMashimoto Electric. Benzai Electric is a local Japanese company located in Japan with 2 annual export sale to Singapore of about SGD 50 million. Based on the informationprovided, which firm is subject to a higher degree of translation exposure? Justify youranswer with thorough explanation on both companies.b) Diamond Limited, a New Zealand company has an Australian subsidiary that earnedAUD40 million this year. Little Limited, which is also resided in New Zealand has anAustralian subsidiary that earned AUD30 million this year. The subsidiary of DiamondLimited plans to reinvest its earnings in Australia while the subsidiary of Little Limitedplans to remit its earnings to the New Zealand parent. Another New Zealand…

Transfer Pricing; Ethics Zen Manufacturing Inc. is a multinational firm with sales and manufacturing units in 15 countries. One of its manufacturing units, in country X, sells its product to a retailunit in country Y for $300,000. The unit in country X has manufacturing costs of $150,000 for theseproducts. The retail unit in country Y sells the product to final customers for $450,000. Zen is considering adjusting its transfer prices to reduce overall corporate tax liability.Required1. Assume that both country X and country Y have corporate income tax rates of 40% and that no specialtax treaties or benefits apply to Zen. What would be the effect on Zen’s total tax burden if the manufacturing unit raises its price from $300,000 to $360,000?2. What would be the effect on Zen’s total taxes if the manufacturing unit raised its price from $300,000 to$360,000 and the tax rates in countries X and Y are 20% and 40%, respectively?3. Comment on any ethical issues you observe in this case