Affiliate A sells 7,200 units to Affiliate B per year. The marginal Income tax rate...
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Affiliate A sells 7,200 units to Affiliate B per year. The marginal Income tax rate for Affiliate A ls 25 percent and the marginal income tax rate for Affiliate B is 40 percent. Additionally, Affiliate B pays a tax-deductible tariff of 5 percent on imported merchandise. The transfer price per unit is currently $2,000, but it can be set at any level between $2,000 and $2,400. Derive (a) a formula to determine the effective marginal tax rate for Affiliate B, and (b) a formula to determine how much annual after-tax profits can be increased by selecting the optimal transfer price. (Do not round intermediate calculations. Round the "Effective marginal tax rate" to 2 decimal places.) Effective marginal tax rate Increase in annual after-tax profits
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