Teflon Company has a manufacturing subsidiary in Singapore that produces high-end exercise equipments for U.S. consumers. The manufacturing subsidiary has total manufacturing costs of 1,500,000 plus general and administrative expenses of 350,000. The manufacturing unit sells the equipment for 2,500,000 to the U.S. marketing subsidiary, which sells it to the final consumer for an aggregate of 3,500,000. The sales subsidiary has total marketing, general, and administrative costs of 200,000. Assume that Singapore has a corporate tax rate of 33% and that the U.S. tax rate is 46%. Assume that no tax treaties or other spectial tax treatment apply.
What is the effective tax rate (consolidated income tax/ consolidated operating income) of Teflon Company? What is the new effective tax rate, if the manufacturing subsidiary raises its price by 20% to sales subsidiary?