Subsidiary X sells 10,000 units to Subsidiary Y annually. The marginal income tax rate for Subsidiary X is 30% and the marginal income tax rate for Subsidiary Y is 45%. The transfer price per unit is currently $5,000, but it is likely to adjust at any level between $5,000 and $5,500.
Your Task: Derive a formula to determine the increase in the annual after-tax profits by selecting the optimal transfer price. Then, calculate, to adjust, the optimal transfer price.
Accurately derived the formula to determine the increase in the annual after-tax profits by selecting the optimal transfer price.
Accurately calculated the optimal transfer price.
Presented a structured document free of spelling and grammatical errors.
Properly cited sources using APA format.