Multinational transfer pricing, goal-congruence (continuation of 23-24). Suppose that, thanks to a special trade agreement signed between the European Union and Morocco, now —_{_ perating income, the Moroccan division could sell as many units as it makes at $720 per unit in the European —_1 000 units sold in EU, market, net of all marketing and distribution costs, without any import duty and continuing $120,000 to pay income taxes in Morocco.

REQUIRED 1. From the viewpoint of Kasba Inc. as a whole, would after-tax operating income be maximized if it sold the 1,000 units in Canada or in Europe?

2. Suppose each division manager acts autonomously to maximize his or her division’s after-tax operating income. Will the transfer price calculated in requirement 2 of Exercise 23-24 result in the Moroccan division manager taking the actions determined to be optimal in requirement 1 of this exercise? Explain.

3. What is the minimum transfer price that the Moroccan division manager would agree to?

Does this transfer price result in Kasba Inc. as a whole paying more import duty and taxes than the answer to requirement 2 of Exercise 23-24? If so, by how much?

LO1