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The Nature and Wildlife Corporation has manufacturing facilities in country A and an assembly plant in country B. In June 2020, the company will ship
The Nature and Wildlife Corporation has manufacturing facilities in country A and an assembly plant in country B. In June 2020, the company will ship 1,000 units with a production cost of $65 per unit to its plant in country B. Its operating expenses in country A are $15,000 for the month. The income tax rate in country A is 20% and in country B it is 40%. The company plans to have a transfer price of $100 per unit. The final product can be sold in country B for $140. Country B's operating expenses are $10,000 during the month.
- How much will the combined profits of the two operations be in April 2021?
- Could the company benefit by changing the transfer price to $120?
- Now, suppose the income tax rate in country A is 40% while in country B it is 20%. What will the combined profit be if all of the other numbers are the same as they were in the original assignment description?
- What would be the result in question 3 if the company decreased its transfer price to $90?
- Provide a 100 word summary of how this can be applied to the current economy.
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