Arco ships 15 million barrels of refined oil monthly from Arco‑Canada to Arco‑U.S. Arco‑U.S. has to pay a U.S. ad valorem tariff of 6%. Tax accountants advise Arco that it can set the transfer price in the range of $15‑$18 per barrel of product. The current price is set at $16 a barrel. If Arco-Canada’s tax rate is 50% (the U.S. rate is 46%., what is the incremental cash flow per month associated with using the optimal transfer price?
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