Which One of the Following Is Correct Concerning a Spin-Off

question 38

Multiple Choice

Which one of the following is correct concerning a spin-off?

• A) A division of a firm is reconstituted as a new firm.
• B) An unprofitable division is divested.
• C) A division of a firm is bought by its managers.
• D) The spin-off generates no free cash flow.

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Definitions:

Investing

Distributing financial resources with the aim of earning revenue or gains.

Covenants

Agreements or clauses, especially in contracts and property leases, that stipulate actions the parties must perform or avoid.

Monitoring

The process of systematically observing, checking, and recording activities or data to ensure standards are met or progress is being made.

Moral Hazard

The situation where one party is more likely to take risks because they do not bear the full consequences of their actions.