Reference no: EM132755599
Question - Trudat Corporation, headquartered in Canada, manufactures milling machines. It has two marketing subsidiaries, one in the United States and one in Mexico that sell its products. Trudat is building one new machine, at a cost of $500,000. There is no market for the equipment in Canada.
The equipment can be sold in the United States for $1,000,000, but the United States subsidiary would incur transportation and modification costs of $200,000. Alternatively, the equipment can be sold in Mexico for $950,000, but the Mexican subsidiary would incur transportation and modification costs of $250,000.
The Canadian company can sell the equipment to either its United States subsidiary or its Mexican subsidiary but not both. Trudat Corporation and its subsidiaries operate in a much decentralized manner. Managers in each company have considerable autonomy, with each manager interested in maximizing company income.
REQUIRED -
a) From the viewpoint of Trudat and its subsidiaries taken together, should Trudat Corporation manufacture the equipment? If it does, where should it sell the equipment to maximize total operating income? (Ignore tax effects) (Show your work)
b) What is the minimum transfer price that Trudat Corporation (Canada) would be willing to accept independently of the subsidiaries?
c) What are the maximum transfer prices that the United States and Mexico subsidiaries would be willing to accept independently of each other?
d) The effective tax rates for this transaction are as follows: 40% in Canada, 65% in the United States, and 10% in Mexico. The tax authorities in the three countries are uncertain about the cost of the intermediate product and will allow any transfer price between $500,000 and $710,000. If Trudat and its subsidiaries want to maximize the combined net income, where should the equipment be transferred to and at what price?
e) Suppose all the managers act autonomously to maximize their own company's after-tax operating income. The tax authorities will allow transfer prices only between $500,000 and $710,000. Which subsidiary will get the product and at what price?
|
What is the correlation between the two stocks
: What is the correlation between the two stocks? Interpret the result. Your portfolio has had a variance of 25% over the past few years.
|
|
What is the journal entry recorded for the issuance
: On January 1, Staple Company issued bonds with a face value of $200,000. What is the journal entry recorded for the issuance
|
|
Compute the correct cash in bank balance
: The cash in bank balance per ledger is P400,000. You determined that the entity recorded a P50,000 check payment as P5,000. Compute correct cash in bank balance
|
|
Business organization as compared to partnership
: Describe briefly two advantages and two disadvantages of a corporate form of business organization as compared to a partnership.
|
|
Which subsidiary will get the product and at what price
: The tax authorities will allow transfer prices only between $500,000 and $710,000. Which subsidiary will get the product and at what price
|
|
Investigate new proposals or policy implementations
: Investigate new proposals or policy implementations that have impacted this evolution, as well as current healthcare access and efficiency issues in the Kingdom
|
|
What amount of gain or loss on transfer company recognize
: As of December 31, 2019, it has a carrying value of Php 4,900,000. What amount of gain or loss on transfer should the company recognize on December 31, 2020
|
|
What before-tax amount should the company report as loss
: What before-tax amount(s) should the company report as loss on discontinued operations in its 2021 income statement
|
|
Described as propaganda
: Describe a communication example that you have seen that is best described as propaganda.
|