Can a Foreign Target Be Assessed Like Any Other Asset?

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 improve 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.

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