Which of the Following Is Correct? the Direct Sale of Additional

question 17

Multiple Choice

Which of the following is correct? The direct sale of additional shares of stock at book value per share to only the parent company from a subsidiary

• A)decreases the parent's interest and decreases the noncontrolling shareholders' interest.
• B)decreases the parent's interest and increases the noncontrolling shareholders' interest.
• C)increases the parent's interest and increases the noncontrolling shareholders' interest.
• D)increases the parent's interest and decreases the noncontrolling shareholders' interest.

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Definitions:

Cost of Capital

Cost of Capital is the rate of return that a company must earn on its project investments to maintain its market value and satisfy its creditors and investors.

Legal Bankruptcy

A legal process whereby individuals or businesses unable to meet their debt obligations can seek relief from some or all of their debts.

Protective Covenants

Clauses in loan agreements that are designed to protect the lender by restricting the borrower’s actions, such as limiting dividends, adding debt, or asset sales.

Technical Insolvency

A situation where a company is unable to meet its short-term liabilities with its current assets, despite possibly having a greater amount in long-term assets.