Topic - Subsidiary Purchase
When a parent company looks to purchase a subsidiary, there are many ways to fund the purchase. The two most popular ways to pay for the new acquisition are: (1) To give the subsidiary cash for its acquisition, and (2) To give the subsidiary ownership percentage within the parent. Based on these facts, answer the following questions:
What are the advantages and disadvantages of each of the purchase methods?
Under which circumstance would you use each of these methods?
Under what set of circumstances is each method most beneficial to the subsidiary?
Under what set of circumstances is each method most beneficial to the parent?
Which method costs the parent more?