Generation Electronics makes solar panels at its plant in Akron, Ohio. Its variable cost per panel is $90 and the full manufacturing cost is $250. Generation ships 300,000 pan- els to a division in Madrid, Spain. Net of marketing and distribution costs, the Madrid division sells the panels throughout the European Union at an average price of $500. Generation pays a 25% tax on the U.S. division's income. Spain levies a 30% tax rate on income in the Madrid division. Both tax authorities only permit transfer prices that are between the full manufacturing cost per unit and a market price of $375, based on comparable imports into Spain. 1. What transfer price should Generation select to minimize the company's tax liability? In an effort to protect local manufacturers, Spain introduces customs duties on solar panel imports. A 17% customs duty is now levied on the price at which panels are transferred into the country. The duty is a deductible expense for calculating Spanish income for the purposes of income tax. 2. Calculate the after-tax operating income earned by the U.S. and Spanish divisions from transferring 300,000 solar panels (a) at the full manufacturing cost per unit and (b) at the market price of comparable imports. 3. In the presence of the customs duty, what transfer price should Generation select to minimize the company's tax liability? Explain your reasoning.