32 Suppose affiliate A sells 10,000 chips monthly to affiliate B at a unit price of $15. A’s tax rate is 45% and B’s tax rate is 55%.
20.32 Suppose affiliate A sells 10,000 chips monthly to affiliate B at a unit price of $15. A’s tax rate is 45% and B’s tax rate is 55%. In addition, B must pay an ad valorem tariff of 12% on its imports. If the transfer price on chips can be set anywhere between $11 and $18, how much can the total monthly cash flow of A and B be increased by switching to the optimal transfer price?
a) $3,000
b) $4,000
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d) $1,380
The correct answer is d) $1,380.
Can you please provide a written solution to this problem as I am not able to solve the question.