Optimal transfer price to minimize total cash outflows

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Reference no: EM131555341

Suppose affiliate A and affiliate B are in different countries. Affiliate A sells auto parts to affiliate B. Affiliate A's tax rate is 30%, and affiliate B's tax rate is 50%. If the transfer price can be set anywhere between $100 and $150, and affiliate B must pay a tariff of 5% on its imports. What is the optimal transfer price to minimize the total cash outflows (i.e. tax and tariffs) from the two affiliates? Please show calculations to support your conclusion.

Reference no: EM131555341

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