Target Is a Wholly Owned Subsidiary of MegaCorp Inc

question 101

Multiple Choice

Target is a wholly owned subsidiary of MegaCorp Inc. MegaCorp supplies a number of services to target. Target sells some of its products to other MegaCorp subsidiaries. Target also buys products from other MegaCorp subsidiaries that are used as inputs in producing Target's products. Which of the following adjustments should the acquirer make to Target's financial statements before valuing the firm?

• A) Deduct the actual cost of services required by Target that are being supplied by the parent without charge from target's cost of sales.
• B) Deduct the difference between the cost of products purchased from other MegaCorp subsidiaries at below market prices and the actual market prices for such products from Target's cost of sales.
• C) Deduct the difference between the cost of products purchased from other MegaCorp subsidiaries at above market prices and the actual cost of such products if purchased from other sources from Target's cost of sales
• D) A and B only.
• E) None of the above.

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Definitions:

Infatuation Love

An intense but short-lived passion or admiration for someone, often mistaken for deep love.

Infatuation

An intense but short-lived passion or admiration for someone or something.

Passionate Relationship

A romantic relationship characterized by intense emotions and sexual attraction.

Companionate

Relating to or denoting a type of love characterized by deep affection and commitment.