Question

Avon inc. is a u.s.-based seller of beauty products. ireland's corporate tax rate is 12.5%. the u.s. corporate tax rate is 21%. the parent firm wants to repatriate 70% of net income as dividends annually. u.s. has 15.5% tax on repatriation. they just reported $340,000 foreign income. how much is the net dividend to the parent firm after they repatriated to the u.s.?

a. $297,500.00
b. $175,971.25
c. $126,835.17
d. $215,750.28

Answer 1

The net dividend to the parent firm of Avon Inc. after repatriation to the U.S. is $175,971.25. This considers taxes in both Ireland and the U.S. as well as the desired repatriation percentage.

Step-by-step explanation:

Avon Inc. is a U.S.-based seller of beauty products with a reported foreign income of $340,000. To calculate the net dividend repatriated to the U.S., we need to take into account Ireland's corporate tax rate (12.5%), the U.S. corporate tax rate (21%), the parent firm's desire to repatriate 70% of net income as dividends, and the U.S. tax on repatriation (15.5%).

First, we subtract the Irish corporate tax from the foreign income: $340,000 * (1 - 0.125) = $297,500. This is the net income after Irish tax. Then, the firm wants to repatriate 70% of this: $297,500 * 0.70 = $208,250. Finally, we must subtract the U.S. repatriation tax: $208,250 * (1 - 0.155) = $175,971.25.

Therefore, the net dividend to the parent firm after repatriation is $175,971.25, which corresponds to option B.