CASE DETAILS

Multi-Diversified (MD) is an established, U.S.-based multinational corporation that is in the business of producing and selling widgets. MD is listed on the New York Stock Exchange (NYSE) and is required to report using U.S. GAAP. They are headquartered in Las Vegas, Nevada and employ nearly 50,000 people. Sustainability is a major part of their brand and company culture. MD voluntarily produces CSR reports in addition to their financials each period.

After performing a SWOT analysis, MD decided that they needed to expand internationally to areas that have low labor costs, low tax rates, and where there is a sufficient market demand for widgets.

Before selecting potential geographical areas for expansion, MD wants to gauge the international appetite for widgets by making export sales to the large global market of Singapore. They made the sales on May 1, 2020 (sales price: 10,000 foreign currency units) and collected payment on May 31, 2020.

Management identified three potential international targets for a new and highly efficient production facility. Management estimates that they have $1,000,000 to initially invest. They need to reclaim their investment within 5 years and require a return of at least 5%. The information about these targets is below.

For whichever target MD chooses, MD plans to be very involved in day-to-day operations as well as determine sales prices, lend money to the target for wages and capital investment decisions, and have a significant amount of upstream and downstream transactions.

TARGET DETAILS

	Location	Payback Period	ROI	NPV	IRR	Corporate Tax Rate	Proposed Sale Price
Alpha Company	Greece	10 years	5.23%	0.0	6.45%	29%	$5.6 million
Bravo Inc.	Australia	6.5 years	4.98%	1.0	4.93%	30%	$7.8 million
Charlie Ltd.	Venezuela	4 years	6.73%	3.2	7.25%	34%	$4.4 million

Notes to Alpha Companys financial statements:

Greek firms, as part of the EU, are required to use IFRS as of 2005. This year Alpha invested heavily in AIresearch costs were 700,000 and development costs were 1.3 million Euros.

Notes to Bravo Inc.s financial statements:

Bravo Inc. follows Australian GAAP, which is equivalent to IFRS. They use the revaluation method for measuring their PP&E and check for impairments each year. This year they reversed 500,000 Australian Dollar worth of impairments for their PP&E.

Notes to Charlie Ltd.s financial statements:

Venezuelan firms are required to use Venezuelan GAAP, which is a modified and outdated version of IFRS. As such, they are still allowed to use LIFO. If they were using the up-to-date IFRS rules, they would have been forced to use an alternative inventory cost flow assumption and would miss out on cost savings of 765,000 Venezuelan Bolivar this period.

1) Assume Alpha Company produced $285,000 in foreign source income this period that must be claimed by MD for tax purposes. Greek local taxes are $75,000. Would MD be better off taking a FTC or a deduction for Alphas income? Please show how you reached your conclusion.

2) Given the details of the case, when translating Alpha Companys performance (income statement) and position (balance sheet), what translation method should MD use and why? Is this the optimal translation method for MD, i.e., what are its advantages and disadvantages compared to other options?

3) You are in charge of creating MDs newest CSR report. The person previously in charge of creating the report was fired because their report was criticized for not being relevant or reliable. What mistakes do you think the last person made and what will you do to circumvent these issues (discuss two points)?