PART A

Multinational transfer pricing, global tax minimisation

Derwent Ltd manufactures telecommunications equipment at its plant in Geelong. The
company has marketing divisions throughout the world. A Derwent Ltd marketing division in
Dallas, USA, imports 10 000 units of product B12 from Australia. The following information is
available:

Suppose that the Australian and US tax authorities only allow transfer prices that are between
the full manufacturing cost per unit of $800 and a market price of $950, based on comparable
imports into the USA. The US import duty is charged on the price at which the product is
transferred into the USA. Any import duty paid to the US authorities is a deductible expense
for calculating US income taxes due.

Required

1. Calculate the after-tax operating profit earned by the Australian and US divisions from
transferring 10 000 units of product B12: (a) at full manufacturing cost per unit and
(b) at market price of comparable imports. (Income taxes are not included in the
calculation of the cost-based transfer prices.)

2. Which transfer price should Derwent Ltd select to minimise the total of company
import duties and income taxes? Remember that the transfer price must be between
the full manufacturing cost per unit of $800 and the market price of $950 of
comparable imports into the USA. Explain your reasoning.

PART B

Multinational transfer pricing, goal congruence (continuation of PART A)

Suppose that the Australian division could sell as many units of product B12 as it makes at

$900 per unit in the US market, net of all marketing and distribution costs.

Required

1. From the viewpoint of Derwent Ltd as a whole, would after-tax operating profit be maximised if it sold the 10 000 units of productB12 in Australia or in the USA? Show your calculations.

2. Suppose that division managers act autonomously to maximise their division’s aftertax operating profit. Will the transfer price calculated in requirement 2 of Scenario 1a) result in the Australian division manager taking the actions determined to be optimal in requirement 1 of this exercise? Explain

3. What is the minimum transfer price that the Australian division manager would agree to? Does this transfer price result in Derwent Ltd as a whole paying more import duty and taxes than in the answer to requirement 2 of Scenario 1a)? If so, by how much?

A wealthy individual is admitted to your hospital. He was diagnosed 48 hours ago with kidney failure and needs a transplant. He is placed on the transplant list, but is advised it will probably take months or years to obtain a kidney. Suddenly, today an individual arrives with a foreign appearing man, who doesn't speak English and appears unkempt. He states he is the patient's "cousin" and wishes to "gift" a kidney to your patient. What rules apply to organ donation? Who oversees them? Is this illegal activity or OK? What is the hospital's obligation in "policing" the source of donated organs? 500 word response and use own words - not copy and paste from Google.

Exercise 10-13 Effects of Changes in Sales, Expenses, and Assets on ROI [LO10-1]

[The following information applies to the questions displayed below.]

CommercialServices.com Corporation provides business-to-business services on the Internet. Data concerning the most recent year appear below:

1. Compute the company's return on investment (ROI).

2. The entrepreneur who founded the company is convinced that sales will increase next year by 50% and that net operating income will increase by 200%, with no increase in average operating assets. What would be the company’s ROI?

3. The Chief Financial Officer of the company believes a more realistic scenario would be a $1,000,000 increase in sales, requiring a $250,000 increase in average operating assets, with a resulting $200,000 increase in net operating income. What would be the company’s ROI in this scenario? (Do not round intermediate calculations.)

A researcher wants to know the proportion of students at the university who live in residence. A sample of 50 students was taken and the researcher found 25 of them lived in residence. What is the 99% confidence interval for the proportion of students who live in residence?

Discuss the role/function of document management systems (DMS). From an individual perspective where should scanning occur (point of care, HIM, centralized or ????) and why choose these options. Who should be ultimately responsible for the management of the Document Management System?

Swaziland has the highest HIV prevalence in the world: 25.9% of this country’s population is infected with HIV. The ELISA test is one of the first and most accurate tests for HIV. For those who carry HIV, the ELISA test is 99.7% accurate. For those who do not carry HIV, the test is 92.6% accurate. If an individual from Swaziland has tested positive, what is the probability that they carry HIV

Hudson Hornet, age 50 and married, is a car gallery owner who has accumulated a substantial investment portfolio without a clear long-term strategy in mind. Two of his customers who work in financial Markets comment as follows: Mater McQueen: "My investment firm, based on its experience with investors, has standard investment policy statements in five categories. You would be better served to adopt one of these standard policy statements instead of spending time developing a policy based on your individual circumstances." Sally Carrera: "Developing a long-term policy can be unwise given the fluctuations of the Market. You want your investment advisor to react continuously to changing conditions and not be limited by a set policy." Hornet hires a financial advisor, Jay Limo. At their initial meeting, Limo compiles the following notes: “Hornet currently has a $3.0 million portfolio that has a large con - centration in small-capitalization US equities. Over the past five years, the portfolio has averaged 15 percent annual total return on investment. Hornet hopes that, over the long term, his portfolio will continue to earn 15 percent annually. When asked about his risk tolerance, he described it as "low." He was surprised when informed that US small-cap portfolios have experienced extremely high volatility. He does not expect to retire before age 60. His current income is more than enough to meet his expenses. Upon retirement, he plans to sell his car gallery and use the proceeds to purchase an annuity to cover his post-retirement cash flow needs. Both his income and realized capital gains are taxed at a 20 percent rate. No pertinent legal or regulatory issues apply. He has no pension or retirement plan but does have enough health insurance for post-retirement needs. His children are 25 and 27 years old who are both university graduates with the ability to take care of themselves.”

Q5. Do below for Limo’s case

a. Comment on his statement to take risk, willingness to take risk and ability to take risk

b. Comment on his tax constraint, liquidity constraint and regulatory constraint

c. Does he have short term targets? If yes what, if not what are his long-term targets

d. Does having no retirement plan increase or decrease his ability to take risk?

e. State his return and risk objectives as high, average or low

Q16 A recent​ WSJ/NBC News poll was based on nationwide telephone interviews of 1000 adults. It was conducted March​ 23-27, 2020. Individuals were selected so that all listed landline telephone numbers had an equally likely chance to be included in the sample. The cellphone sample was selected from a list of cellphone users nationally.

Respondents to the survey were asked what they thought about social media sites like Facebook and Twitter.​ Specifically, they were asked if they believed that social media does more​ “to bring us​ together” or​ “to divide​ us” as a nation. 650 of the 1000 respondents said that social media does more​ “to bring us​ together” as a nation.  

Answer the following questions about this survey.

a. The point estimate of the population proportion of adults who believe that social media does more​ “to bring us​ together” is ​ _______.

A.

​0.35%

B.

​0.65%

C.

0.35

D.

0.65

b. Construct the​ 95% confidence interval estimate for the population proportion of adults who believe that social media does more​ “to bring us​ together”. That​ is, complete the​ statement:

According to the recent​ WJS/NBC News​ poll, the proportion of adults who believe that social media does more​ “ to bring us​ together” is​ __________ with a margin of error of​ _________.    

A.

0.65​ , 0.0004

B.

​0.65% , 0.030

C.

​0.65% ,​ .004%

D.

0.65​ , 0.030

c. The margin of error would​ _______ (increase,​ decrease) if the​ 95% confidence interval was constructed from a sample of 500​ adults, rather than 1000.

A.

increase

B.

decrease

d. Given the same sample size of​ 1000, the margin of error would​ ________ (increase,​ decrease) if a​ 99% confidence interval is constructed instead of a​ 95% confidence interval.

A.

decrease

B.

increase

Suppose individuals A, B and C are on a stranded island. There are no other people on the island except for A, B and C. Each of them can only do two activities to survive: either gather coconuts or catch fish. Individual A can either gather 10 coconuts or catch 16 fish; individual B can either gather 8 coconuts or catch 10 fish and individual C can either gather 20 coconuts or catch 20 fish. Assume that all three of these individuals have linear production possibility frontiers.

a) Who has the absolute advantage in catching fish and who has the absolute advantage in gathering coconuts? Consider the maximum productivity of each individual when deciding on who has the absolute advantage.

b) Who has the comparative advantage in catching fish and who has the comparative advantage in gathering coconuts? Consider the opportunity costs each individual has in each of the tasks when determining the comparative advantage.

c) Plot each individual’s PPF. Put the quantity of fish on x-axis and quantity of coconuts on the y-axis. d) Plot the joint PPF of all three individuals. Remember to take into account the kink points.

Author’s Biography:
Claire Cain Miller is a correspondent for The Times, where she writes about
gender, families and the future of work for The Upshot, a Times site for analysis
of policy and economics. She was part of a team that won a Pulitzer Prize in 2018
for public service for reporting on workplace sexual harassment issues. Ms.
Miller, who joined The Times in 2008, previously covered the tech industry for
Business Day. She received a Bachelor of Arts degree from Yale University and
a Master’s degree in journalism from the University of California, Berkeley.
Sanam Yar is one of the contributors for The New York Times, and she writes
about youth culture and social media. She is based in New York.

k. Based on the author’s biography, evaluate and justify on the author’s credibility.