Arrow, a U.S. corporation, annually sells one million starter motors to Bentley, a wholly owned foreign subsidiary organized in Country K. Bentley sells the starters as replacement parts through auto dealers in Country K. The statutory Country K tax rate is 20%. The U.S. tax rate is 21%. 

a. What is the value of Arrow's annual U.S. tax deferral if the starters cost Arrow $30 to produce, are sold to Bentley for $50, and are re-sold to the auto dealers for $70? Assume Bentley's operating expenses are $4 million.

b. What additional benefit would accrue to Arrow annually if it reduced the sale price of each starter from $50 to $30? What mechanisms are likely to be used by U.S. tax authorities to address this situation?

c. How would your answer to Part a change if Bentley sold one-half of the starters to auto dealers in Country M under the same terms as it sold them to auto dealers in Country K?