Tailor Johnson, a U.S. maker of fine menswear, has a subsidiary in Ethiopia. This year, the subsidiary

Question:

Tailor Johnson, a U.S. maker of fine menswear, has a subsidiary in Ethiopia. This year, the subsidiary reported and repatriated earnings before interest and taxes (EBIT) of 100 million Ethiopian birrs. Assume the current exchange rate is 8 birr/$ or S1 = $0.125/birr. The Ethiopian tax rate on this activity is 25%. Tax law in the United States requires Tailor Johnson to pay taxes on the Ethiopian earnings at the same rate as profits earned in the United States, which is currently 45%. However, the United States gives a full tax credit for foreign taxes paid up to the amount of the U.S. tax liability. What is Tailor Johnson’s U.S. tax liability on its Ethiopian subsidiary?

Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...