Self-reading Quiz- Group

What is the main source of power for an investor over an investee?

• Ownership of shares
• Contractual rights
• Decision-making rights
• All of the above

Voting rights give an investor power to:

• Participate in management decisions
• Control dividends
• Dictate daily operations
• Influence or control key decisions in the investee

Contractual rights may provide an investor power over an investee by:

• Voting at shareholder meetings
• Granting veto power
• Forcing liquidation
• Deciding operational budgets

Which of the following is NOT an example of power over an investee?

• Rights to dividends
• Ability to appoint board members
• Voting rights
• Contractual decision-making rights

What can give an investor the power to direct the relevant activities of an investee?

• Economic benefits
• Market share
• Voting or potential voting rights
• Dividends

Returns from an investee include: (1) Fees for services; (2) Dividend; (3) Synergies from business combinations

• 1 only
• 2 only
• 1 and 3 only
• All of the above

Power arises from: (1) legal rights; (2) Potential voting rights; (3) Economic interests

• 1 only
• 1 and 2 only
• 3 only
• All of the above

Decision-making rights grant:

• Control over stock prices
• Influence over the investee’s dividends
• Power over relevant activities of the investee
• The ability to manage day-to-day operations

Which of the following criteria must be met for rights to be considered substantive in the context of control over an investee?

• The holder must have the theoretical ability to exercise the rights
• The rights must be exercisable only under certain future conditions
• The holder must have the practical ability to exercise the rights
• The rights can be exercised by a third party on behalf of the holder

In such a scenario that an investor holds potential voting rights, but the rights can only be exercised if the stock price doubles, which is unlikely. How are these rights classified?

• Currently exercisable
• Financially viable
• Deeply out-of-the-money
• Substantive