Can a foreign acquisition target be assessed like any other asset? Provide your argument as to...

Can a foreign acquisition target be assessed like any other asset? Provide your argument as to why or why not.

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Expert Solution

POINT:Yes. The value of a foreign target to an MNC is the present value of the future cash flows to the MNC. The process of estimating a foreign target’s value is the same as the process of estimating a machine’s value. A target has expected cash flows, which can be derived from information about previous cash flows.

COUNTER-POINT:No. A target’s behavior will change after it is acquired by an MNC. Its efficiency may change depending on the ability of the MNC to integrate the target with its own operations. The morale of the target employees could either improve or worsen after the acquisition, depending on the treatment by the acquirer. Thus, a proper estimate of cash flows generated by the target must consider the changes in the target due to the acquisition.

WHO IS CORRECT?Use the Internet to learn more about this issue. Which argument do you support? Offer your own opinion on this issue.

ANSWER:Some targets may continue their business in the same manner as before, and their cash flows may not change significantly. Others are restructured due to the acquisition, so their cash flows might deviate substantially from before the acquisition.

ekkarill92 answered 1 year ago

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