Question: Rand Corporation owns 100 percent of the stock of Flo
Rand Corporation owns 100 percent of the stock of Flo, a foreign corporation con-ducting business in Portugal. Flo generates $100,000 before-tax annual income on which it pays a 30 percent Portuguese tax. Flo can reinvest its after-tax earnings for an indefinite time period in Europe at a 7 percent before-tax rate of return. Alternatively, Flo could distribute its after-tax earnings to Rand, which could invest the funds in the United States at a 9 percent before-tax rate of return. Assuming that Rand’s U.S. tax rate is 35 percent, should it repatriate Flo’s earnings to maximize its rate of return?
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