Chapter 1, Problem 22QA

ABC Ltd. ABC Ltd.’s principal business activity is the assembly of circuit boards. One of the key materials used is copper wiring, all of which is imported. As a cost cutting measure, a contract with a new overseas supplier was signed, and all of the company’s copper wiring is now supplied under this contract. Purchases are denominated in a foreign currency, but the company does not use forward exchange contracts in relation to its imports of copper wiring. The company has two production facilities, one of which produces goods for the export market, and the other produces goods for the domestic market. About half of its goods are exported, but the export market is suffering due to competition from cheaper producers overseas. Most domestic sales are made under contract with approximately 20 customers. In October 2020, production was halted for a week at the production facility which supplies the domestic market. A number of customers had returned goods, claiming faults in the circuit…

Financial Risk Havering Ltd is involved in the manufacture of high technology computer chips and is based in Stockton-on-Tees. It is considered to be one of the UK’s premier high-tech companies and have proved to be exceptionally profitable in the past. You have ascertained the following information about Havering Ltd's activities. It imports most of its raw materials from Japan. Its Japanese supplier insists on prompt payments, in Yen. All other costs are incurred locally and paid for in sterling. The major customers of Havering Ltd are spread throughout the world, although 45% of their revenue originates in Western Europe, where local companies insist on being billed in Euro’s and require 90- day credit terms. A major customer based in Iceland has fallen behind in payment of the amounts it owes to Havering Ltd. Havering Ltd have invested heavily in modern plant, most of which was financed by loans in sterling. Loans are primarily a mixture of floating rate instruments, although there…

Due to their rapid expansion to foreign markets the process is sometimes referred to as the “McDonaldization” of new markets. Which market entry strategy is McDonald’s Corporation using in those countries where local governments do not allow 100% foreign funded enterprises? a.Franchising b.Partnerships with local (domestic) companies c.Mergers & acquisitions d.Local holdings e.Direct export

Your company located in the US imports raw materials from Europe. If the European Central Bank announces to lower the Euro exchange rate, what impact do you expect to see in your business?   A. Your company will pay higher US dollar costs to import from Europe.     B. Your company will pay lower US dollar costs to import from Europe.   C. The Euro exchange rate doesn't have any impact on your company.   D. It should reduce your competitiveness in your home market.

A U.S.-based MNC has a subsidiary in Malaysia that generates substantial net cash inflows denominated in Ringgit Malaysia. Given this information, the MNC would ____ from a ____ of the Ringgit Malaysia. A. benefit; appreciation B. not benefit; depreciation C. benefit; depreciation D. not benefit; appreciation

DeltaTel a subsidiary of a multinational company supplies phone services to a mid-sized community in Ghana. John, the CEO attended a trade exhibition, ‘Automated Emigrate’ in Japan. As a result, John is concerned about  DeltaTel’s ability to maintain its competitive position in the Ghanaian market. Owing to deregulation in the industry, and aggressive competition, a significant number of DeltaTel’s customers have switched. John feels that if DeltaTel were to invest fully in a new state–of–the–art fiber-optics technology as well as upgrade the latest computer equipment, the loss of market share may be arrested and operating efficiency may be improved. He contacted a leading vendor of fiber-optics systems and associated computer equipment to obtain information on operating characteristics and costs. This vendor would provide the necessary fiber-optic equipment, all associated installation costs, computer hardware, and initial software support for a total cost of GHS30,000,000. Although…

Transfer Pricing; International Considerations; Strategy As indicated in the chapter, determining the appropriate transfer price in a multinational setting is a very complex problem, with multiple strategic considerations. Consider as an example a U.S. company with a subsidiary in Italy and asubsidiary in Ireland. The Italian subsidiary produces a product at a cost of $1,000 per unit. This unitis then sold to the Irish subsidiary, which adds $100 of cost to each unit. The unit is then shipped tothe U.S. parent company, which adds an additional $100 of cost to each unit. The unit is then sold to aU.S. customer for $2,000. Assume that the tax rate in Italy is 30%, the tax rate in Ireland is 15%, andthe tax rate in the United States is 35%.Required1. Define the term transfer price. Why is transfer pricing strategically important to organizations?2. What creates income tax planning opportunities when determining transfer prices in a multinational setting? Where could one go to obtain…

Whitehill Chemicals has two operating divisions. Its Formulation Division in the United States mixes, processes, and tests basic chemicals, and then ships them to Ireland, where the company's Commercial Division uses the chemicals to produce and sell various products. Operating expenses amount to $27.0 million in the U.S. and $79.0 million in Ireland exclusive of the costs of any goods transferred from the U.S. Revenues in Ireland are $205 million. If the chemicals were purchased from one of the company's Irish mixing divisions, the costs would be $40.0 million. However, if it had been purchased from an independent U.S. supplier, the cost would be $53.0 million. The marginal income tax rate is 20 percent in the U.S. and 12 percent in Ireland. Required: What is the company's total tax liability to both jurisdictions for each of the two alternative transfer pricing scenarios ($40.0 million and $53.0 million)? Note: Enter your answers in dollars and not in millions of dollars. Total tax…

Whitehill Chemicals has two operating divisions. Its Formulation Division in the United States mixes, processes, and tests basic chemicals, and then ships them to Ireland, where the company's Commercial Division uses the chemicals to produce and sell various products. Operating expenses amount to $27.2 million in the U.S. and $79.2 million in Ireland exclusive of the costs of any goods transferred from the U.S. Revenues in Ireland are $207 million. If the chemicals were purchased from one of the company's Irish mixing divisions, the costs would be $40.2 million. However, if it had been purchased from an independent U.S. supplier, the cost would be $53.2 million. The marginal income tax rate is 20 percent in the U.S. and 12 percent in Ireland. Required: What is the company's total tax liability to both jurisdictions for each of the two alternative transfer pricing scenarios ($40.2 million and $53.2 million)? Note: Enter your answers in dollars and not in millions of dollars. Total tax…