If an Investor Owns Less Than 20% of the Common

question 46

Multiple Choice

If an investor owns less than 20% of the common stock of another corporation as an investment

• A) the equity method of accounting for the investment should be employed.
• B) no dividends can be expected.
• C) it is presumed that the investor has relatively little influence on the investee.
• D) it is presumed that the investor has significant influence on the investee.

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Definitions:

Capital Gains Yield

The price appreciation component of the total return on an investment, expressed as a percentage of the initial investment cost.

Constant Rate

A steady, unchanging rate of growth or decline, often used in the context of compounding interest or depreciation.

Expected Growth Rate

The projected annual rate at which an investment or a company's earnings are expected to grow.

Constant Growth Model

A model used to estimate the value of a stock assuming that dividends grow at a constant rate indefinitely.