Wheelco a foreign corporation manufactures motorcycles for

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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 Wheely's debt to equity ratio is 3 to 1, and Wheely makes annual interest payments of $60 million to Wheelco. The results from Wheely's fi rst year of operations are as follows:

Sales $180 million

Interest income $6 million

Interest expense (paid to Wheelco) ($60 million)

Depreciation expense ($30 million)

Other operating expenses ($81 million)

Pre-tax income $15 million

Assume the U.S. corporate tax rate is 35%, and that the applicable tax treaty exempts Wheelco's interest income from U.S. withholding tax. Compute Wheely's interest expense

Reference no: EM13390641

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