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1 :Why in the calc of Eva in part a, the examiner hasn’t added back the Depreciation value of 88 ?? Since its a non Cash expense.
2: In Eva Calculation do we Take Profit before interest and tax ? OR Operating Profit ?
Because in kaplan text book it takes Profit before tax , but in this question he takes Operating Profit3: My third n last query is there any possible way that i can have proper grip on transfer pricing?
I have been through kaplan text and also open tuition lectures but still in the exam questions i get too confused, can you help ?1 Book depreciation should be replaced by economic depreciation. Some questions tell you what that is, but otherwise you have to assume it’s the same as book depreciation so that there is no net adjustment.
2 I think operating profit is before interest and tax. I think what you mean to ask is whether to take operating profit or profit after interest and tax. You can use either then work forward or back.
3 It is hard to add much more to what you already have read and listened to. However, instead of learning rules remember the following:
(a) The aim of transfer pricing is to maximise group profit: that drives everything.
(b) However, divisional managers don’t really care about that and they focus on maximising their own division’s profit.
(c) Therefore, a suitable transfer price takes into account divisional managers’ decisions but tries to ensure that those decisions happen to be the ones that also maximise group profits.
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