Which of the Following Statements Most Accurately Describes an Aspect

question 1

Multiple Choice

Which of the following statements most accurately describes an aspect of a tax-deferred sale of a business to a group of employees, through share reorganization?

• A) This method of sale is appropriate when the vendor is unsure of the purchaser's ability to manage the business.
• B) The vendor generally does not participate in financing the sale of the business.
• C) There is a risk to the original shareholder, as the value of his/her preferred shares depends on the success of the corporation following the sale.
• D) The employees will purchase the corporation's original common shares from the vendor.

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Definitions:

Proportions

The relationship between parts of a whole, expressed as fractions, percentages, or ratios.

Capital Market Line

A line used in the capital asset pricing model to illustrate the rates of return for efficient portfolios depending on the risk (measured by standard deviation).

Capital Allocation Line

A graphical representation that shows risk and return of possible portfolios by combining a risk-free asset with a portfolio of risky assets.