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Echo, Incorporated, which has a 21 percent U.S. tax rate, plans to expand its business...

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Accounting

Echo, Incorporated, which has a 21 percent U.S. tax rate, plans to expand its business into Country J. It could open a branch office, or it could create a foreign subsidiary in Country J. The branch office would generate $5,000,000 income in year 0. The foreign subsidiary would incur incremental legal costs and, as a result, would generate only $4,750,000 income in year 0. This income would be taxed at Country Js 15 percent corporate rate. Any repatriation of the subsidiarys earnings would qualify for the 100 percent dividends-received deduction.Required:Assume none of the subsidiary's earnings would be considered GILTI or subpart F income, calculate the NPV of the Year 0 after-tax foreign source income from opening a branch office or forming a foreign subsidiary.Should Echo open the branch office or form the subsidiary to maximize year 0 after-tax foreign earnings?
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