Topic #1: 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?