Which of the Following Requirements Must Be Met for a Redemption

question 14

Multiple Choice

Which of the following requirements must be met for a redemption to be treated as substantially disproportionate?

• A) The shareholder must own less than 50% of the outstanding stock (in terms of voting power) after the redemption.
• B) After the redemption, the shareholder must own less than 80% of his percentage ownership of common stock (voting and nonvoting) prior to the redemption.
• C) After the redemption, the shareholder must own less than 80% of his percentage ownership of voting stock prior to the redemption.
• D) All of the above must be met.

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Definitions:

Net Income

Represents a company's total earnings, reflecting the amount of revenue that remains after all operating expenses, taxes, and preferred stock dividends have been deducted.

Interest Expense

The cost incurred by an entity for borrowed funds, often expressed as a periodic payment of interest on debt.

Unlevered Cost

The cost of funding a project or investment without taking into account the effects of leverage, reflecting the cost of equity.

Pre-Tax Cost

The cost of an investment or expense before the deduction of taxes, often used to compare the fiscal efficiency of different financial decisions.