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The case describes the transfer pricing (?adjustment rate?) system at Caja Espana. a)Use the adjustment rates in Exhibit 6 to calculate the profit of the

The case describes the transfer pricing (?adjustment rate?) system at Caja Espana. a)Use the adjustment rates in Exhibit 6 to calculate the profit of the Gradefes and Madrid-Barrio de Salamanca branches, according to the procedure described in the profitability analysis section of the case.

For these calculations assume the following: ?All mortgages are one-year adjustable-rate mortgages, and all term deposits have a three month maturity.

?Standard costs:

?Branch manager?50,000

?Controller40,000

?Commercial Officers 25,000

?Gradefes clients are mainly depositors who use the ATM network intensively and visit other branches with relative frequency. Madrid-Barrio de Salamanca is located in a commercial area of Madrid and is often used by customers of other branches (mainly from other provinces) while they shop in the area. For these reasons, Gradefes is a net payer of services to other branches for ?30,000, and Madrid-Barrio de Salamanca received a net ?20,000 from the rest of the branch network in 2002.

?For corporate services, branches are charged a flat annual fee of ?12,000 and a ?usage? fee equal to ?10 per customer of the branch.

?The Treasury charges the branches 4.01% (the 10-year government bond rate) for their cash balance.

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