1. On January 1, Year 1, Red Crown, Inc. purchased 25% of Red Hand Co.'s outstanding common shares and 40% of Red Leaf Co.'s nonvoting preferred stock. Red Crown plans to hold the investments on a long-term basis. Red hand reported net income of $300,000 for Year 1 and paid common stock dividends of $100,000. Red Leaf reported net income of $450,000 and paid preferred dividends of $200,000. On its December 31, Year 1 income statement, what amount of income from these investments should Red Crown report?
a. $105,000 b. $155,000 c. $205,000 d. $255,000
2. Which of the following correctly describes sensitivity analysis?
recalculation of project NPV by changing several inputs to new but consistent values.
measures the degree to which fixed costs magnify the effect on profits of a shortfall in sales.
analysis of how project NPV changes if different assumptions are made about key variables.
measures the future level of sales at which NPV equals zero.