Valuation by McKinsey & Company Inc. & Marc Goedhart & David Wessels

Author:McKinsey & Company Inc. & Marc Goedhart & David Wessels
Language: eng
Format: epub
ISBN: 9781118874271
Publisher: Wiley
Published: 2015-07-18T00:00:00+00:00

Exhibit 18.6 presents two approaches for estimating operating taxes. Use both methods to determine the operating taxes for ToyCo in year 3. What are ToyCo's statutory rate, effective tax rate, and operating tax rate (under both approaches)?

When a company incorporated in a country with a high tax rate does business in countries with lower tax rates, it will report an effective tax rate below its statutory rate. Is the difference sustainable into the future? What occurs if the company decides to repatriate earnings? How should operating taxes be computed in the year of repatriation? How is ROIC distorted by foreign taxation and repatriation?

Exhibit 18.11 presents deferred-tax assets and liabilities for ToyCo. Using Exhibit 18.8 as a guide, reorganize the deferred-tax table into two categories: net operating deferred-tax assets (net of operating deferred-tax liabilities), and net nonoperating deferred-tax assets (net of nonoperating deferred-tax liabilities). In year 3, ToyCo generated $200.7 million in operating taxes on $673.6 million of EBITA. Using this information, what are the cash taxes in year 3? What is the percent of operating taxes that were deferred, and what is the operating cash tax rate?

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