Question
A new project is projected to yield 2.5 million annually in after-tax profit, based on a local corporate profit tax rate of 40%. However, this
A new project is projected to yield 2.5 million annually in after-tax profit, based on a local corporate profit tax rate of 40%. However, this profit figure depends on the use of a transfer price of 30 per unit on a component bought from the parent. If the project requires 100,000 units of this component annually, the impact on project profitability and on parent profitability of a boost in the transfer price to 35 will be _______ and ________, respectively. The parent's marginal tax rate is 34% and the incremental tax on subsidiary remittances to the parent is 3%.
c) 300,000, +321,000 <- answer : WHY?
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