John Inc and Victor Inc for Its 70% Stake in Jinxtor

question 24

Multiple Choice

John Inc and Victor Inc for its 70% stake in Jinxtor. Jinxtor reported a net income of $3,000,000 for 2013. John's plant and equipment were estimated to provide an additional 5 years of utility to Jinxtor. Assume that the facts provided above with respect to the Jinxtor joint venture remain unchanged except that John receives $240,000 in return for investing its plant and equipment. What would be the impact of this transaction?

• A) This would result in Jinxtor owing John $40,000.
• B) This would result in a return of equity to John in the amount of $30,000.
• C) This would result in a return of equity to John in the amount of $40,000.
• D) This would result in a return of equity to John in the amount of $12,000.

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Definitions:

Herfindahl Index

A measure of market concentration that squares and sums the market share percentages of all firms within an industry.

Four-Firm Concentration Ratio

The four-firm concentration ratio is a measure used to assess the competitiveness of a market by calculating the combined market share of the four largest firms within an industry.

Herfindahl Index

A measure of the size of firms in relation to the industry and an indicator of the competition level among them.

Dominant Strategy

In a strategic interaction (game) between two or more players, a course of action (strategy) that a player will wish to undertake no matter what the other players choose to do.