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Hi – can you please explain the remittable flows part of this question. Why is the royalty biped get deducted in YR and then deducted in $. How did they get the contribution?
With regard to the contribution, they current charge 200 and earn a contribution of 40. So the cost is 160.
In future they will charge 280, and so the contribution will be 280 – 160 = 120.The royalty is not deducted in $’s – it is added!
Can you explain the tax treatment. I think that’s where I’m confused – the treatment of tax in multinational investment appraisal questions.
Hello sir,hope you are well.
Why is the tax loss c/f added in the 3rd year after being offset by the profit?
Thanks in advance
The cash flows are first calculated in YR applying the tax rules in YR.
Then the net cash flows are converted to $’s and other $ cash flows are added to them. Since tax in the US is higher than in YR, there is no extra tax on the YR remittances, but there is US tax on the extra $ flows.
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