At the Time of Addison's Death, He Owned 70% of the Stock

question 73

Multiple Choice

At the time of Addison's death, he owned 70% of the stock in Robin Corporation, a closely held family business. Over the past five years, Robin has averaged annual profits of $400,000 in an industry where the usual rate of return is 9%. If the book value of the corporation's assets is $1,000,000 and goodwill exists, what might be a realistic value of the stock in Addison's gross estate?

• A) $310,000
• B) $1,550,000
• C) $1,785,000
• D) $2,550,000
• E) None of the above.

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Definitions:

Equity Ratio

A financial metric used to measure a company's level of indebtedness by comparing total equity to total assets.

Equity Sensitives

Individuals who prefer an equitable balance between the input they provide and the outcomes they receive in comparison to others.

Entitleds

Individuals who hold an exaggerated belief in their own importance or rights, expecting special treatment and privileges without corresponding responsibilities.

Expectancy Theory

A motivation theory stating that an individual's motivation is based on the perceived likelihood that effort will lead to successful performance and the value of the resulting rewards.