1. What should be Capitool’s general policy on the formulation of international transfer prices? The Capitool Company, with headquarters and main manufacturing plant in Racine, Wisconsin, in the United States, produces a line of capital equipment for use in a variety of industries, especially for automobiles, trucks, farm equipment, and construction equipment. The company was founded over 70 years ago, with sales (turnover) growing slowly to about US$60 million by the end of World War II, and since then more rapidly to more than US$3 billion in the mid-1990s. After-tax profits have grown correspondingly, usually amounting to about 3
–
4% of turnover.

Capitool has been a leader in offering an advanced line of products. Heavy research and product development expenditures coupled with customer orientation have enabled the company to achieve a dominant position in the US market.