Division a Transfers a Profitable Subassembly to Division B, Where

Division A transfers a profitable subassembly to Division B, where it is assembled into a final product. A is located in a European country that has a high tax rate; B is located in an Asian country that has a low tax rate. Ideally, (1) what type of before-tax income should each division report from the transfer and (2) what type of transfer price should Division A set for the subassembly? $\begin{array} { | l | l | l | l | l | l | } \hline &\text { Division A } &&\text { Division B }&&\text { Transfer Price Set } \\& \text { Income }&&\text { Income }&&\text { by A }\\\hline 1 & \text { Low } & & \text { Low } & & \text { Low } \\\hline 2 & \text { Low } & & \text { High } & & \text { Low } \\\hline 3 & \text { Low } & & \text { High } & & \text { High } \\\hline 4 & \text { High } & & \text { Low } & & \text { High } \\\hline 5 & \text { High } & & \text { High } & & \text { Low } \\\hline\end{array}$

A) 1
B) 2
C) 3
D) 4
E) 5