If a Company Acquires a 40% Interest in Another Company

question 22

Multiple Choice

If a company acquires a 40% interest in another company

• A) the equity method is usually applicable.
• B) it would always have a controlling interest.
• C) one of the fair value models is usually applicable.
• D) the investor does not have the ability to exert significant influence over the investee.

---

Definitions:

Average Return

The simple mathematical average of a series of returns generated over a period of time.

NPV Technique

A method used in capital budgeting to evaluate the profitability of an investment or project, by calculating the net present value of all cash flows associated with it.

Mutually Exclusive

Events or choices that cannot occur or be taken at the same time.

Capital Projects

Large, longer-term investments undertaken by a business or government to create, maintain, or expand its operational capacity.