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Subsidiary x sells 10000 units to subsidiary y annually the

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Reference no: EM13483702 , Length: 20

Optimal Transfer Price

Scenario: Subsidiary X sells 10,000 units to Subsidiary Y annually. The marginal income tax rate for Subsidiary X is 30% and the marginal income tax rate for Subsidiary Y is 45%. The transfer price per unit is currently $5,000, but it is likely to adjust at any level between $5,000 and $5,500.

Your Task: Derive a formula to determine the increase in the annual after-tax profits by selecting the optimal transfer price. Then, calculate, to adjust, the optimal transfer price.

Reference no: EM13483702

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