Third-Party Transfer Prices: Peaches Ratliff owns a 20 percent interest in Global Tricycle Corp. Global Tricycle earns operating profits of $20 million per year before considering any of the transactions discussed in this problem. Global leases 500,000 square feet of office space from Peaches Building Corp., a leasing firm in which Peaches Ratliff holds an 80 percent interest. Rental payments averaged $15 per year per square foot. Costs associated with these rental payments average $8 per square foot. Global Tricycle has a management agreement with Ratliff Management Corp.. which is wholly owned by Peaches Ratliff. The management agreement requires Global Tricycle to pay Ratliff Management $250,000 per year plus 1 percent of Global's operating profits after rental payments. Ratliff Management incurs $120,000 in costs per year, which includes $30,000 in office rental paid to Peaches Building Corp. for 2.000 square feet of leased space. Costs of this leased space also average $8 per square foot. The building has no other tenants, and the management company has no other clients.

Required:

a. What amount of operating profits from all of these activities accrues to Peaches Ratliffs share of the operating profits from each of these organizations.

b. By how much would Peaches Ratliffs operating profits increase or decrease if the rental charges for Peaches Building Corp. were increased to $16.50 per square foot per year?