Which of the Following Is an Advantage of a Spin-Off

question 71

Multiple Choice

Which of the following is an advantage of a spin-off versus selling a subsidiary and distributing the cash?

• A) A spin-off increases the transaction costs associated with selling the subsidiary.
• B) Shareholders must immediately pay capital gains taxes versus ordinary income taxes on the value of the spin-off.
• C) A spin-off guarantees a lower cost of capital.
• D) The spin-off is not taxed as a cash distribution.

Calculate free cash flow from provided data.

Analyze the effect of changes in balance sheet accounts on cash flows from operating activities.

Determine cash provided by or used in investing activities.

Understand the effects of indirect vs direct method on reporting operating activities in the statement of cash flows.

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Definitions:

Liquidating Dividend

A type of dividend paid by a company to its shareholders from its capital rather than its earnings, typically during the partial or full liquidation of the company.

Dividend

A portion of a company's earnings that is paid to shareholders, typically on a quarterly basis.

NPV Projects

Projects evaluated based on Net Present Value, a method to assess the profitability of investments by discounting future cash flows.