A spin-off may create shareholder wealth for all of the following reasons except for
A) Spin-offs are generally not taxable if properly structured
B) The spin-off's management and board is independent of the former parent
C) Investors will be better able to value the spin-off
D) The cost of capital of the spin-off is generally higher than when it was part of the parent
E) The spin-off may be subsequently acquired by another firm

Question

Quizplus · Accepted Answer

The cost of capital of the spin-off is generally lower than when it was part of the parent, not higher. This is because the spin-off is now a smaller, more focused business and may be viewed as less risky by investors, resulting in a lower cost of capital.

A Spin-Off May Create Shareholder Wealth for All of the Following