International Accounting- You are an investment analyst domiciled in country Z doing a cross-country?

Question

comparison of two manufacturing companies in the pharmaceuticals industry. Both companies, X and Y (located in Countries X and Y), have similar expected sales of $300 million. Country X has a corporate income tax; Country Y has no income tax, but relies on indirect taxes. Selected data for companies X and Y are as follow:

Company X Company Y

Pretax income $60 million $36 million

Return on sales 12.0% 12.0%

Required: Determine which company promises to have the better financial performance. What tax considerations might affect you conclusions?

I know is hard but give it a try!!!!!

Answer 1

how can company X and Y have expected sales in the same currency? do both only sell to the US?

sales for each according to return on sales are

x/y

$500M/ $300M

expected sales for each @ $300 M= pretax income of

$36M/$36M

any tax on company X will affect earnings

so company Y