Marshall School of Business University of Southern California Global Investors, Inc. Teaching Note Purpose of Case This case was written to illustrate a transfer pricing problem in a service setting, here an investment management company. The issues and solutions are not as obvious as in a manufacturing setting where one division produces parts that are transferred to another division for further processing. The case is a disguised version of a real conflict in which emotions were running high. The case exposes students to a broad range of issues that can be raised when negotiating transfer pricing. These include cost allocation methods, managers’ interests and perceptions, organizational roles and conflicts, taxes, …show more content…
Thus, on the operating income line, each subsidiary looks like it is earning a profit (see case Exhibit 5). The current measurement system provided some real advantages for GI. It ensured that the subsidiaries would look financially sound to local regulators and clients. It gave the impression to tax authorities that each subsidiary was earning a profit. And it was simple. But the current system had some drawbacks. Alistair Hoskins, CEO of the London subsidiary, was the most vocal in pressing for change. He seemed to have several concerns. He was concerned that if the London subsidiary was ever sold, it might be valued simply at a multiple of earnings or earnings before interest, tax, depreciation and amortization (EBITDA). He believed that the subsidiary generated more profit than it was given credit for. He was also concerned that GI would face serious consequences if the local regulatory authorities learned 130 © Pearson Education Limited 2007 Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition, Instructor’s Manual that the subsidiaries’ real profits were higher than were being reported. To date, GI had never had to undergo a tax audit, so the tax authorities had never detected this problem.1 The transfer pricing alternatives proposed, which are outlined in detail in the case, are
Expected wait time in the system for an application in Region 1 is approximately 37 days, with actual processing time of 14.10 hours. This is where the bottleneck occurs as it takes the evaluation team over 16 days out of the 37 to perform the review of 78 applications.
earnings. The income from the sale fueled a further diversification of the company, but also a
Our approach is an active security selection with passive asset allocation. We invest heavily in common stocks, but vary our holdings to include companies of all sizes and industry groups. We seek to achieve sufficient diversification by abstaining from investing more than 5% of the total assets in a single security unless it has significant upside potential, and we make an exception for ETFs and index funds as they represent a basket of securities. Our main goal is to identify and invest in common stocks with high potential for both short- and long-term capital appreciation. Our secondary goal is to invest in common stocks with steady income. When potential for rewards are high, we also enter into derivative
Harburg Ltd. Epic Ltd. 20 27 9 13 14 25 29 28 22 30 10 30 4 5 6 11 28
Despite his many efforts to tighten operations while continuing to grow the business, the new
Most corporate financing decisions in practice reduce to a choice between debt and equity. The finance manager wishing to fund a new project, but reluctant to cut dividends or to make a rights issue, which leads to the decision of borrowing options. The issue with regards to shareholder objectives being met by the management in making financing decisions has come to become a major issue of recent times. This relates to understanding the concept of the agency problem. It deals with the separation of ownership and control of an organisation within a financial context. The financial manager can raise long-term funds internally, from the company’s cash flow, or externally, via the capital market, the market for funds
We assume that the company will be a going concern entity and maintain growth in line with the economy. However increased competition, loss of market share, unsuccessful management strategy, or even potential bankruptcy due to various reasons is just examples of the less cheerful scenario for the company.
All of these issues are summed up in Thompsons (2008) assertion that Groves was the right man to grow the business but not the right man to manage the business, had the right manager been in place then the organization may have been able to turn its fortunes around.
Which is cost difference determines the patterns of international trade. Absolute advantage is trade benefits when each country is at least cost producer of one of the goods being traded. In the 1800s, David Ricardo developed the theory of comparative advantage to measure gains from trades. This theory is based on comparative advantage and it states each nation should specialize in production of those goods for which its relatively more efficient with a lower opportunity cost.
U.S. stocks and the dollar exchange rate dropped and bond costs mobilized on Wednesday as financial investors run away from risky resources in the midst of instability about U.S. President Donald Trump's capacity to make tax changes after the threat of impeachment.
Increase in the profits above the actual budget can be attributed to 20% increase in sales in 2009. Although Jean’s profits were above the actual budget, French Division’s earnings were much lower than what it could have been, had they budgeted for the actual volume of sales that they ended up selling. We can partly attribute this decrease in earnings to the fact
Social responsibility is the future. Investors always have to think about the future. Many people are concerned about the environment and what will happen to the environment in the future. Socially responsible investing is getting increasingly popular. The social responsibility project will come from Canadian tire. This company has many projects to help the community and is very widespread to help many people. Canadian tire is very known in Cape Breton for helping children and even kittens. In early 2014, Canadian Tire were in news stories for taking in abandoned kittens and let them live in the store creating a bigger, more happier fan base of the company. This project will take five percent of profit and use it to be socially
There were several core problems that were interrelated around the strategy, organization, and structure of the company. Strategically, they were trying to do too many things. It wasn’t clear what the core businesses were,
come from the whole company but only from Harold. He chose to reorganize things that
4. How does this case illustrate how strategic intent needs to be matched by both organizational capability and managerial competence; and show how such