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The case describes the transfer pricing ("adjustment rate") system at Caja Espana.
The case describes the transfer pricing ("adjustment rate") system at Caja Espana. a)Use the adjustment rates in Exhibit 6 to calculate the profit of the Gradefes and Madrid-Barrio de Salamanca branches, according to the procedure described in the profitability analysis section of the case.
For these calculations assume the following: •All mortgages are one-year adjustable-rate mortgages, and all term deposits have a three month maturity.
•Standard costs:
•Branch manager€50,000
•Controller40,000
•Commercial Officers 25,000
•Gradefes clients are mainly depositors who use the ATM network intensively and visit other branches with relative frequency. Madrid-Barrio de Salamanca is located in a commercial area of Madrid and is often used by customers of other branches (mainly from other provinces) while they shop in the area. For these reasons, Gradefes is a net payer of services to other branches for €30,000, and Madrid-Barrio de Salamanca received a net €20,000 from the rest of the branch network in 2002.
•For corporate services, branches are charged a flat annual fee of €12,000 and a "usage" fee equal to €10 per customer of the branch.
•The Treasury charges the branches 4.01% (the 10-year government bond rate) for their cash balance.
