A Firm Can Distribute Shares of a Subsidiary in a Transaction

question 18

Multiple Choice

A firm can distribute shares of a subsidiary in a transaction referred to as a

• A)merger.
• B)spin-off.
• C)acquisition.
• D)cash disbursement.

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Definitions:

Risk-Adjusted Rates

In capital budgeting, a rate used in place of the cost of capital to reflect especially risky projects.

Interest Rate

The amount charged, expressed as a percentage of the principal, by a lender to a borrower for the use of assets.

Certainty Equivalent NPV

A method of valuing risky projects or investments by adjusting the expected cash flows to reflect the investor's risk aversion, providing a 'risk-free' net present value.

Cost of Capital

The minimum return on investment a business necessitates to uphold its market value and entice financial inflow.