In a direct investment, which of the following best describes the investor's involvement in the enterprise?

• A. The investor acquires a controlling interest and actively manages the enterprise.
• B. The investor lends money to the enterprise and earns interest.
• C. The investor purchases stocks and receives dividends without any management role.
• D. The investor only provides advice but does not contribute capital.

Answer: (A)

Verified step by step guidance

1. Understand the concept of direct investment: it typically involves an investor acquiring a significant ownership stake in a company, which usually means having control or influence over the company's operations.
2. Recognize that acquiring a controlling interest means the investor owns enough shares or equity to influence or direct the management and policies of the enterprise.
3. Contrast direct investment with other forms of investment such as lending money (debt financing), which involves earning interest but no control, or purchasing stocks without management roles (portfolio investment).
4. Note that providing only advice without capital contribution does not constitute an investment but rather a consultancy or advisory role.
5. Conclude that the best description of direct investment is when the investor acquires a controlling interest and actively manages the enterprise.