Assess how a company divests, whether through a sale or a spin off
The idea
A sale converts a business into cash; it creates value only if after-tax proceeds exceed the value of the cash flows given up by selling it, so tax on the gain over the tax basis must be deducted. Proceeds can repay debt, fund investment or be returned to shareholders. A spin-off hands shares in the unit to existing holders. It raises no cash but is often tax-free and can remove a conglomerate discount, sharpen management focus and give investors a pure-play holding, though it adds standalone costs. Carve-outs sell part of a unit in an IPO. The traps are comparing gross proceeds with value, and assuming a spin-off brings in cash or a control premium.
In the app: 2 practice questions on this outcome, a narrated walkthrough with diagrams, spaced review that brings it back before you forget it.
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