Which of the following describes the goal that should be pursued when setting transfer prices

In this project you will create a spreadsheet (name it LastnameFirstname_Project2), which gets you thinking about the financial concepts covered in this course and how they relate to the very real decision of buying a home versus renting. The conclusion may be surprising!You are asked to grapple with a variety of real world financial topics from mortgages to taxes and deductions on federal income tax returns.The last part asks you to compare renting to buying by looking at what renters could invest with the money they save from not owning a home.Mortgages and Taxes: Deb and Rusty have gotten married and wish to buy a home. They both work in Boston and have a combined income of $90,000. They found a modest starter house, which they are buying for $350,000.(5%) The happy couple plans to use their $40,000 in savings to cover the closing costs the bank will charge them, which are 1% of the amount they borrow from the bank. The rest of the savings will be used as a down payment. So, if they borrow $330,000 using $20,000 for a down payment, the closing costs will be $3,300; but they did not use all of their savings up. Determine the largest amount they can use for a down payment and still pay the closing costs.BorrowDown PaymentClosing CostsSavings Left$330,000$20,000$3,300$16,700(10%) Create a 20-year amortization schedule, giving monthly payments for the amount they borrowed at a 4.5% annual interest rate.(5%) Compute the total amount of interest they will pay the bank over the 20 years.(10%) Deb and Rusty know that buying a house will save them money on taxes because they get to deduct interest they pay to the bank each year and the property taxes they pay each year. First create a column on a worksheet separate from the amortization schedule, for their Income starting at $90,000 and increasing at 3% for 20 years.(5%) Next create a column for their Property Taxes, which are currently $3,100 a year and will also increase by 3% a year.(10%) Create another column for the amount of Interest they paid to the bank each year (careful here, your amortization schedule is monthly).(5%) Create another column for the yearly Deductions = Property Taxes + Interest.(5%) Next a column for Taxable Income = Income – Deductions.(5%) Go to savewealth.com (Links to an external site.), click on Tax Forms, Income Tax Rates, and then Married Filing Jointly to find the tax formula for Deb and Rusty. Create a column computing the yearly federal taxes. Note that Deb and Rusty change tax brackets over the 20 years, so you must change the formulas.We want to compare the two options of buying the house versus continuing to rent an apartment.(10%) Assume the rent is now $1,000 a month and will increase by 3% a year. How much rent will they pay over the 20 years?(5%) Computer their federal income taxes, which are higher when renting because they don’t have the deductions.(10%) By renting they are saving a lot of money each year! They pay less for rent than mortgage, and they don’t pay property taxes (they do however pay more in income tax). Assume the extra money (including the $40,000 in savings as initial deposit) they have from renting versus buying is all invested at 10% a year, and every year their extra money is added to this account. How much does this amount to after 20 years?(10%) Assume the house increases in value by 3% a year. What is the value of the house after 20 years?(5%) Which option ends up with more money for Deb and Rusty to retire on assuming they sell the house after 20 years?

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Chapter13.Investment Centers and Transfer Pricing

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MULTIPLE CHOICE QUESTIONS

1.The biggest challenge in making a decentralized organization function effectively is:

A.earning maximum profits through fair practices.

B.minimizing losses.

C.taking advantage of the specialized knowledge and skills of highly talented managers.

D.obtaining goal congruence among division managers.

E.developing an adequate budgetary control system.

Answer: D LO: 1 Type: RC

2.What practice is present when divisional managers throughout an organization work together

in an effort to achieve the organization's goals?

A.Participatory management.

B.Goal attainment.

C.Goal congruence.

D.Centralization of objectives.

E.Negotiation by subordinates.

Answer: C LO: 1 Type: RC

3.Consider the following statements about goal congruence:

I.Goal congruence is obtained when managers of subunits throughout an organization

strive to achieve the goals set by top management.

II.Managers are often more concerned about the performance of their own subunits

rather than the performance of the entire organization.

III.Achieving goal congruence in most organizations is relatively straightforward and

easy to accomplish.

Which of the above statements is (are) true?

A.I only.

B.II only.

C.I and II.

D. II and III.

E.I, II, and III.

Answer: C LO: 1 Type: RC

Chapter 13371

What are three main approaches to setting transfer prices?

Which of the following is usually achieved when the general transfer pricing rule is implemented?

What is goal congruence in transfer pricing?

What are transfer prices based on?