Reasons a Parent Company May Pay More Than Book Value

question 8

Multiple Choice

Reasons a parent company may pay more than book value for the subsidiary company's stock include all of the following EXCEPT:

• A) the fair value of one of the subsidiary's assets may exceed its recorded value because of appreciation.
• B) the existence of unrecorded goodwill.
• C) liabilities may be overvalued.
• D) stockholders' equity may be undervalued.

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Definitions:

Follower Strategy

A business approach where a company decides to follow the innovations, products, or services introduced by competitors rather than lead the market.

Value Chains

The full range of activities that businesses undergo to bring a product or service from conception, through production, delivery to the consumer, and final disposal, adding value at each step.

Market Position

Describes a brand's unique spot in the marketplace, determined by consumers' perceptions of the brand and its competitors.

Transnational Strategy

A business approach that combines global integration with local responsiveness to efficiently manage operations across borders.