For What Reason Would a Company Buy 10% of the Common

question 185

Multiple Choice

For what reason would a company buy 10% of the common stock of a second company?

• A)The company has idle cash and wishes to have a higher return than that available from temporary money market investments.
• B)The company wishes to ensure a steady source of goods from the second company.
• C)The company wishes to prepare consolidated financial statements.
• D)None of these are correct.

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Definitions:

Company

A legal entity formed by a group of individuals to engage in and operate a business enterprise.

Working Capital

The difference between a company's current assets and current liabilities, indicating the short-term financial health and operational efficiency of the business.

Company

An organization created by several persons for the purpose of running and operating a business activity.

Dividend Payout Ratio

A financial metric that measures the percentage of a company's earnings paid out to shareholders as dividends.