The Following Information Pertains to the Shareholdings of an Affiliated

question 38

Multiple Choice

The following information pertains to the shareholdings of an affiliated group of companies. The respective ownership interest of each company is outlined below. A Inc.:
A Inc. owns 75% of J Inc. and 60% of G Inc.
J Inc.:
J Inc. owns 60% of D Inc. and 20% of G Inc.
G Inc.:
G Inc. owns 10% of D Inc. and 80% of Y Inc.
All intercompany investments are accounted for using the equity method.
The Net Incomes for these companies for the year ended December 31, 2020 were as follows:
$$\begin{array} { | l | r | } \hline \text { A Inc. } & \$ 1,000,000 \\\hline \text { J Inc. } & \$ 200,000 \\\hline \text { G Inc. } & \$ 600,000 \\\hline \text { D Inc. } & \$ 300,000 \\\hline \text { Y Inc. } & \$ 100,000 \\\hline\end{array}$$ Unrealized intercompany profits (pre-tax) earned by the various companies for the year ended December 31, 2020 are shown below:
$$\begin{array} { | l | l | } \hline G \text { Inc. } & \$ 10,000 \\\hline Y \text { Inc. } & \$ 10,000 \\\hline J\text { Inc. } & \$ 20,000 \\\hline\end{array}$$ All companies are subject to a 25% tax rate.
What is the Consolidated Net Income for the year attributable to the shareholders of A Inc.?

• A) $1,510,000
• B) $1,796,125
• C) $1,817,500
• D) $2,170,000

Recognize and understand potential biases in performance evaluation and their impact.

Understand the concept of Net Present Value (NPV) and its application in evaluating investment projects.

Calculate cash flows associated with an investment, including salvage values, working capital changes, and operational inflows.

Apply discount rates to cash flows to determine the present value in capital budgeting.

---

Definitions:

Hyperventilating

Excessive and fast breathing that can lead to a decrease in carbon dioxide levels in the blood, often triggered by stress or panic.

Apnea

Apnea is a temporary cessation of breathing, especially during sleep, which can be a sign of a sleep disorder such as sleep apnea.

Inspiratory Center

A region in the brainstem involved in the regulation of inspiration, or the intake of air into the lungs.

Chloride Shift

The movement of chloride ions into red blood cells as hydrogen ions move out to maintain electrochemical equilibrium, especially important in carbon dioxide transport in the blood.