Chapter 21, Problem 3IEE

Racton Pte Ltd (Racton), is a foreign company incorporated in America. Racton is attracted to the tax incentives offered by the Malaysian Government on manufacturing of promoted products. As such, Racton is planning to set up a new company (Newco) in Malaysia in order to apply for Pioneer Status or Investment Tax Allowance for its manufactured promoted products. The choice is between setting up a branch or subsidiary for its Malaysian operation. Initially, the plan is for Newco to have only RM2.4 million as paid up capital and as time goes by, Newco will expand its operation if necessary. However, Newco is still undecided on the timing of commencement of business in Malaysia. The choice is either 2019 or 2020. Newco financial year end is 31st December. Estimated gross income is approximately RM 1 Million per year.After 5 years of operation, if everything goes according to plan, Newco plan to expand its manufacturing business by incurring more capital expenditure i.e buying more…

Suppose you work at the FOREX desk of a multinational bank. No particular country is the home country for you as your responsibility is to conduct foreign exchange trade in whichever way is profitable for the bank. Using this as your guideline, consider the following data: S0 = ¥92/US$ S180 = ¥92/US$ IUS = 2% per annum IJapan = 0.09% per annum With a starting amount of US$10 million or its Yen equivalent, can you make a UIA profit? What if a CIA was conducted at F180 of ¥90/US$? What are your observations?

Suppose that Kittle Co. is a U.S. based MNC that is considering setting up a subsidiary in Singapore. Kittle would like this subsidiary to produce and sell guitars locally in Singapore, and needs assistance with capital budgeting. The duration of this project is four years, with an initial investment of S$20,000,000 (Singapore dollars). Kittle Co. managers provide you key information regarding the project. 1. The government in Singapore will tax any remitted earnings at a rate of 10.00%. 2. The subsidiary will remit all of it’s after-tax earnings back to the parent. 3. The forecasted exchange rate of the Singapore dollar over the four-year period is $0.50. 4. The salvage value is S$12,000,000, which will be paid by the Singapore government in exchange for ownership of the subsidiary after four years. 5. The required rate of return is 15.00%. Furthermore, no funds can be remitted from the subsidiary to the parent until the subsidiary is sold for the salvage value at the…