Multinational Co.(MNC )generated $1,000 million in domestic earnings before interest,taxes,and amortization (EBITA).MNC amortizes intangible assets at $200 million per year and takes a $300 million interest expense.MNC's statutory (domestic )tax rate is 34 percent on earnings before taxes,but only 24 percent on foreign operations.MNC had $100 million of pretax foreign income and generates $20 million in ongoing research and development (R&D )tax credits.What is its effective tax rate on pretax profits?

Question

Quizplus · Accepted Answer

Tax on domestic operations = {0.34 * (1,000 – 200 – 300)} – 20 = 150; tax on foreign operations = 0.24 * 100 = 24; total taxes = 174; effective tax rate = 174/(500 + 100) = 29.0%