Midstream Ltd and Delta Ltd Enter into a Business Undertaking

question 6

Multiple Choice

Midstream Ltd and Delta Ltd enter into a business undertaking in which they each commit 50-hectare vineyards.There is a contractual agreement between the two companies whereby they share control and must agree on all strategic financial and operating decisions relating to the two vineyards.The two companies appoint Todman Management Pty Ltd as the manager of the vineyard undertaking.A separate set of accounting database is established for the undertaking and each investor contributes additional cash capital to the undertaking and hold assets other than the vineyards as tenants in common.The intention of the investing companies is to take their proportionate share of the produce from the two vineyards to use in their own wineries.The business undertaking is:

• A) A joint venture operation since the investors have agreed to a sharing of control and to a sharing of the produce of the vineyard.
• B) A joint venture entity since the undertaking has been established as a separate entity in which there is a simple sharing of control.
• C) A simple partnership in which two companies operate as partners in a business undertaking.
• D) None of the above.

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Definitions:

MRS

Marginal Rate of Substitution, the rate at which a consumer can give up some amount of one good in exchange for another good while maintaining the same level of utility.

Budget Line

A graphical representation of all possible combinations of two goods that a consumer can purchase with a given budget at fixed prices.

Expected Percentage Return

The predicted return on an investment, expressed as a percentage of the initial investment.

Standard Deviation

A statistical measure that quantifies the amount of variation or dispersion of a set of data values from the mean of the dataset.