Tailor Johnson, the menswear company with a subsidiary in Ethiopia described in Problem 13, is considering the

Question:

Tailor Johnson, the menswear company with a subsidiary in Ethiopia described in Problem 13, is considering the tax benefits resulting from deferring repatriation of the earnings from the subsidiary. Under U.S. tax law, the U.S. tax liability is not incurred until the profits are brought back home. Tailor Johnson reasonably expects to defer repatriation for ten years, at which point the birr earnings will be converted into dollars at the prevailing spot rate, S10, and the tax credit for Ethiopian taxes paid will still be converted at the S1 = $0.125/birr. Tailor Johnson’s after tax is 5%.
a. Suppose the in ten years is identical to this year’s so S10 = $0.125/birr. What is the present value of deferring the U.S. tax liability on Tailor Johnson’s Ethiopian earnings for ten years?
b. How will the in ten years affect the actual amount of the U.S. tax liability? Write an equation for the U.S. tax liability as a function of the S10.

Cost Of Debt
The cost of debt is the effective interest rate a company pays on its debts. It’s the cost of debt, such as bonds and loans, among others. The cost of debt often refers to before-tax cost of debt, which is the company's cost of debt before taking... 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...