Wheelco, a foreign corporation, manufactures motorcycles for sale worldwide. Wheelco markets its motorcycles in the United States through Wheely, a wholly-owned U.S. marketing subsidiary that derives all of its income from U.S. business operations. Wheelco also has a creditor interest in Wheely, such that Wheelyâs debt to equity ratio is 3 to 1, and Wheely makes annual interest payments of $60 million to Wheelco. The results from Wheelyâs fi rst year of operations are as follows:Sales $180 millionInterest income $6 millionInterest expense (paid to Wheelco) ($60 million)Depreciation expense ($30 million)Other operating expenses ($81 million)Pre-tax income $15 millionAssume the U.S. corporate tax rate is 35%, and that the applicable tax treaty exempts Wheelcoâs interest income from U.S. withholding tax. Compute Wheelyâs interest expense
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