A New Project Is Projected to Yield $2

question 15

Multiple Choice

A new project is projected to yield $2.5 million annually in after-tax profit,based on a local corporate profit tax rate of 40%.However,this profit figure depends on the use of a transfer price of $30 per unit on a component bought from the parent.If the project requires 100,000 units of this component annually,the impact on project profitability and on parent profitability of a boost in the transfer price to $35 will be _______ and ________,respectively.The parent's marginal tax rate is 34% and the incremental tax on subsidiary remittances to the parent is -3%.

• A)-$500,000,+$500,000
• B)-$300,000,+$330,000
• C)-$300,000,+$321,000
• D)+$500,000,-$500,000

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Definitions:

Conception

The process of fertilization where a sperm cell combines with an egg cell to form a zygote, marking the beginning of pregnancy.

Age of Viability

The stage of fetal development at which the fetus is considered capable of surviving outside the womb, typically around the 24th week of gestation.

Fetus's Lungs

The developing respiratory organs in a fetus, which undergo significant growth and maturation during pregnancy to prepare for air breathing after birth.

Breathing Air

The process of inhaling oxygen and exhaling carbon dioxide, essential for life in most organisms.