Subsidiaries A and B buy from and sell to each other.Suppose that A has excess cash,whereas B is short of cash.How can A funnel money to B?
A)A can lead payments owed to B
B)B can lag payments owed to A
C)A can raise transfer prices on goods sold to B
D)a and b only

Question

Quizplus · Accepted Answer

A and B are both methods of delaying payments between subsidiaries. By leading payments, A can delay payment to B, essentially loaning them money. By lagging payments, B can delay payment to A, essentially borrowing money from them. Option C, raising transfer prices, would not be a viable solution as it would not address the issue of B's cash shortage and could cause strain in the relationship between the subsidiaries. Therefore, options A and B, or D, are the best choices.

Subsidiaries a and B Buy from and Sell to Each