A Swedish telephone maker transfers phones costing $10 to produce to its U.S. subsidiary for a transfer price of $20. The U.S. subsidiary sells the phones to retailers for $25 each and spends $5 per phone in promotion and distribution expense. The U.S. subsidiary:

A Swedish telephone maker transfers phones costing $10 to produce to its U.S. subsidiary for a transfer price of $20. The U.S. subsidiary sells the phones to retailers for $25 each and spends $5 per phone in promotion and distribution expense. The U.S. subsidiary:

A Swedish telephone maker transfers phones costing $10 to produce to its U.S. subsidiary for a transfer price of $20. The U.S. subsidiary sells the phones to retailers for $25 each and spends $5 per phone in promotion and distribution expense. The U.S. subsidiary:



a. makes $10, on which it pays U.S. taxes.
b. makes $15, all of which is taxable in the United States.
c. breaks even on the deal because it spends all its revenues.
d. makes a total of $25 on the deal because the phones are effectively free.


Answer: C


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