1.

Assume that Alpha is going to produce the widgets for $400 and sell the widgets for $700. The manager of Alpha Company, in order to meet their performance evaluation goal, decides to sell the widgets to a sales division owned by Multi-Diversified that is located in the Cayman Islands (corporate tax rate = 0%). The widgets have an industry-average mark-up on cost of 40%.

1. What is the negotiated transfer price using the cost-plus method?
2. Assume Multi-Diversified (the parent) intervenes and sets a discretionary transfer price of $450. Please explain why MD would take this action and which parties will be harmed in this deal (use financial figures in your answer).

2. Assume Alpha Company produced $285,000 in foreign source income this period that must be claimed by MD for tax purposes. Greek local taxes are $75,000. Would MD be better off taking a FTC or a deduction for Alphas income? Please show how you reached your conclusion.

3. Given the details of the case, when translating Alpha Companys performance (income statement) and position (balance sheet), what translation method should MD use and why? Is this the optimal translation method for MD, i.e., what are its advantages and disadvantages compared to other options?

4. You are in charge of creating MDs newest CSR report. The person previously in charge of creating the report was fired because their report was criticized for not being relevant or reliable. What mistakes do you think the last person made and what will you do to circumvent these issues (discuss two points)?