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Hello Sir,
in the article of transfer pricing there are menioned certain knock on effects of transfer pricing and profit on divisions and one of them is below :-Investment appraisal:
. New investment should typically be evaluated using a method such as net present value. However, the cash inflows arising from an investment are almost certainly going to be affected by the transfer price, so capital investment decisions can depend on the transfer price.
what does this mean ?
thank UNet present values are not examinable in paper F5, and so don’t worry about this statement.
It would take too long here to explain what they are – if you are interested then have a look at the Paper F2 lectures (although it is Paper F9 where they are examined in detail).
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