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:

Mediation

A process in which a neutral third party helps disputing parties reach a mutually acceptable agreement.

Process Consultation

A form of consulting where the consultant focuses on the processes of an organization, including communication and decision-making, to improve its effectiveness.

Chilling Effect

A situation where the threat of legal action or other potential repercussions suppresses lawful speech or actions.

Binding Arbitration

A type of arbitration where the decision made by the arbitrator is legally enforceable and cannot be appealed.