When the target firm is an operating division of a larger firm,it is common for the parent to provide services to the target at below market prices.In calculating the target's standalone value,it is necessary to subtract the difference between the market price of these services and actual cost paid to the parent from the target firm's net income.

Question

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This statement is true. When the parent company provides services to the target firm at below market prices, it artificially inflates the target firm's net income. To arrive at the target's standalone value, this difference between the market price of the services and the actual cost paid to the parent must be subtracted from the target firm's net income to arrive at a more accurate representation of the target's financial performance.

When the Target Firm Is an Operating Division of a Larger