For a Parent That Sells Goods to a Subsidiary, Transfer

question 58

Multiple Choice

For a parent that sells goods to a subsidiary, transfer pricing can have an effect on international capital expenditure analysis. A very low markup policy makes the APV of a subsidiary's capital expenditure appear

• A)more attractive.
• B)less attractive.
• C)no impact.

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Definitions:

Marginal Cost

Marginal cost is the change in total cost that arises when the quantity produced is increased by one unit; it is the cost of producing one additional unit of a product.

Quantity Of Output

The total amount of goods or services produced by a firm or economy within a specific period.

Deadweight Loss

A loss of economic efficiency that can occur when the free market equilibrium is not achieved due to market failures or interventions.

Marginal Cost Curve

A graphical representation showing how the cost to produce one additional unit of output varies with the level of production.