Assume that Y pays a tax deductible tariff of 7 percent on imported merchandise.Calculate the increase in annual after-tax profits if the higher transfer price of $1,250 per unit is used. (Round intermediate values to nearest whole percentage.)

Question

Quizplus · Accepted Answer

When the ad-valorem import tariff tax is deductible, the effective marginal tax rate paid by Affiliate Y is equal to:(1 + 0.07) × 0.30 - 0.07 = 0.25 = 25%Total tax savings is = 10,000 × ($1,250 - $1,000)(0.20 - 0.25) = $125,000

Assume That Y Pays a Tax Deductible Tariff of 7