Skip to content

IAI Actuarial Core Principles · Business Finance · Corporate growth, restructuring and divestment

Two companies form a joint venture company to enter a new state market, sharing capital and control equally. Compared with a full acquisition of a local firm, which statement is most accurate?

In a joint venture, the partners share the capital outlay and risk, and gain local knowledge, but they also share control and profits. It is not full control, it is not organic growth, and it does not guarantee higher earnings per share.

  1. ARisk and capital outlay are shared, but control and profits are also sharedCorrect
  2. BThe parent firms retain full control of all decisions
  3. CThe partners bear all losses in proportion to nothing
  4. DIt is classed as organic growth because no firm is purchased
  5. It always results in a higher EPS for each partner

Explanation

A joint venture spreads capital and risk and gives access to local knowledge, but control and returns are shared with the partner. It is not full control, and EPS effects are not guaranteed. It is generally treated as an external, inorganic route.

Did you get it right without looking?

One question tells you little. A timed set on Corporate growth, restructuring and divestment shows your real accuracy, how long you take and where you lose marks.

Practise Corporate growth, restructuring and divestmentFree diagnostic mock

More Corporate growth, restructuring and divestment questions