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.

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Definitions:

Net Profit Margin

A profitability ratio that shows what percentage of sales has turned into profits after all expenses are deducted.

Gross Margin

The difference between sales revenue and cost of goods sold, often expressed as a percentage, indicating the profitability of a company's core activities.

Times Interest Earned

A financial ratio that measures a company's ability to meet its interest payments based on its operating income.

Times Interest Earned

A financial ratio that compares a company's operating income before interest and taxes to its interest expenses, indicating how well it can cover interest payments with earnings.