mod 6 homework

Here is the feedback from my professor and the original assignment is uploaded with my answers.

Professors feedback:

Part 1, you did not provide after tax cash flow here. What you provided is for Q1 without the after tax rate.

You need to complete part 1 under $5 option for Vietnam portion and for the U.S. transfer portion.

Total: United StatesVietnamIncome tax rate?21%12%Import duty rate?20%——Withholding tax rate on dividends?———-

6%

You need to have table for $6 option as well they are all under:

total: United StatesVietnamIncome tax rate21%12%Import duty rate20%——Withholding tax rate on dividends———-

6%

After that, you need zero tax rate for the second question. You cannot sum up in just 1 column. Please redo and upload a new copy for grading.

Q2: you need to complete the second portion for this option zero % tax rate.

Saint Leo Corporation (a U.S.-based company) has a wholly-owned subsidiary in
Vietnam that manufactures insulated wire at a cost of $3 per meter. Saint Leo
Corporation imports the insulated wire and sells it to U.S. retailers at a price of $12
per meter. The following information applies:
Income tax rate
United States
21%
Import duty rate
20%
Withholding tax rate on dividends
Vietnam
12%
——
———-
6%
Import duties are levied on the invoice price and are deductible for income tax
purposes. The Vietnam subsidiary must repatriate 100 percent of after-tax
income to Saint Leo Corp. each year. Saint Leo Corp. has determined an
arm’s-length range of reliable transfer prices to be $5.00–$6.00.
Required:
1Determine the transfer price within the arm’s-length range that would maximize Saint Leo Corp’s after-tax
cash flow from the sale of insulated wire in the United States.
2-
Now assume that the withholding tax rate on dividends is 0 percent. Determine the transfer price within the
arm’s-length range that would maximize Saint Leo Corp’s after-tax cash flow from the sale of insulated wire
in the United States.
Students must provide details work for each question.
Question 1
Cost in vietnam per meter
$
Sale Price in the Us per meter $
Import Duty in US
US Tax Rate
Vietnam tax rate
withholding Tax On Dividends
Transfer price range
3.00
12.00
20%
21%
12%
6%
$5.00 $
After-Tax Profit per Meter for
Each Transfer Price
4.74 $
3.79
$
2.64
$
6.43
Vietnam AfterTax Profit per Meter
$1.76
Total After-Tax Profit per
Meter
$
6.50
Optimal transfer price
$
6.50
Decision
Import Duty in the US
US Taxable Income
US Tax
US Profit After Tax
Vietnam Profit Before Tax
Vietnam Tax
Vietnam Profit After Tax
Question 2
$
Total After-Tax Profit
6.00
The Optimal Transfer price is $ 5 because it will increase the profit in Vietnam of 6.5
compared to 6.43 without increasing the US tax by much due to the import duty
deduction.
$
$
$
$
$1.00
6.00
1.26
4.74
$2.00
$0.24
$1.76
$
$
$
$
$
$
$
1.20
4.80
1.01
3.79
3.00
0.36
2.64
6.50
$
6.43
Comparing Total After-Tax Profit, the Tranfer Price of 5 provides the highest of $6.5
compared to $6.43 of Pranfer Price of 6.
SO Tranfer Price of $5 will maximize Saint Leo Corp’s after-tax cash flow from the sale
of insulated wire in the United States.