Subsidiary $x,$ located in a country with a $25\%$ corporate income tax rate, and Subsidiary $Y,$ located in a country with a $35\%$ corporate income tax rate are part of a decentralized organization. They have been engaged in trade with one another using a negotiated transfer price of $$50$ per unit for sales by Subsidiary $x$ to Subsidiary $Y.$ Pipko, the parent company of both Subsidiary $x$ and Subsidiary $Y$ recently set a discretionary transfer price of $$80$ per unit for the transfers between $x$ and $Y.$ How will subsidiary managers in the decentralized organization view this decision by parent company management?

Multiple Choice

$$ The manager of Subsidiary $Y$ will be concerned about the decline in Subsidiary $Y\text{'}$s profit and the effect this will have on his$/$her bonus.

They will embrace it whole$-$heartedly because corporate profits will increase.

They won't mind because the intercompany transaction will still occur.

They won't notice because all decisions in the decentralized organization are made by the parent.