XYZ Buys a 24 Per Cent Share in ABC for $80m.ABC's

question 18

Multiple Choice

XYZ buys a 24 per cent share in ABC for $80m.ABC's total net profit is $50m and it pays $4m in dividends to XYZ.
-Using the equity method,the value of the investment in ABC would be recorded at year-end as:

• A) $80m.
• B) $88m.
• C) $92m.
• D) $19m.

---

Definitions:

Minimum Required Rate

The lowest return rate that an investment must offer to be considered viable or acceptable.

Residual Income

The income that remains after deducting all costs, including the cost of capital.

Turnover

The total sales generated by a business within a specific period. It can also refer to the rate at which employees leave a company and are replaced.

Residual Income

Residual income is the profit earned after subtracting all required costs of capital from the operating profit.