Townsend Ltd. Has the Following Shareholders: Palermo Co.-60

question 16

Multiple Choice

Townsend Ltd. has the following shareholders: Palermo Co.-60%
Nix Ltd.-30%
Riley Ltd.-10%
Nix has two seats on Townsend's five-person board of directors. Which of the following statements is true?

• A)Nix has significant influence over Townsend.
• B)Nix has control over Townsend.
• C)Townsend is a special purpose entity to Nix.
• D)Nix should treat Townsend as a passive investment.

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Definitions:

Marginal Cost

The increase in total cost that arises when the quantity produced is incremented by one unit.

Profit-maximizing Rule

The principle that firms maximize their profits by producing at a level where marginal costs equal marginal revenues.

Marginal Revenue

The increased earnings a business obtains from the sale of one extra item or service.

Marginal Cost

The increase in total cost that arises from producing one additional unit of a product.