The importance and widespread use of transfer pricing in international trade makes capital budgeting in MNCs very difficult unless the transfer prices used accurately reflect actual costs and incremental cash flows.

Question

Quizplus · Accepted Answer

Transfer pricing plays a significant role in the determination of the profitability of a multinational corporation's (MNC) individual units. As a result, capital budgeting exercises require accurate transfer pricing to determine the true costs of a project or investment, as well as the incremental cash flows generated by it. Failing to account for transfer pricing accurately can result in wrong investment decisions and reduced profitability for the MNC.

The Importance and Widespread Use of Transfer Pricing in International