Suppose that Kittle Co. is a U.S.-based MNC that is considering setting up a subsidiary in Singapore.
Question:
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$20,000,000 (Singapore dollars). Kittle Co. managers provide you key information regarding the project.
Furthermore, no funds can be remitted from the subsidiary to the parent until the subsidiary is sold for the salvage value at the end of the project. In short, those funds are blocked. Until then, all funds from the subsidiary will be invested in securities that yield a 5.00% return net of taxes per year. The following table shows a subsection of Kittle’s capital budgeting analysis. Complete rows (14a)-(14c) of the table, filling in the amount of Singapore dollars remitted in year 4 for each of the cash flows from years 1–3. Then, complete row (14d), filling in the total S$ accumulated from investing these blocked funds. Next, complete row (15), filling in the amount of Singapore dollars withheld for taxes and the total after-tax Singapore dollars to be remitted to the parent in row (16). Then, calculate and enter the resulting U.S. dollar cash flows to the parent in row (19). Note: Do not forget to account for the salvage value in row (19).
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Andersons Business Law and the Legal Environment
ISBN: 978-0324786668
21st Edition
Authors: David p. twomey, Marianne moody Jennings