Question #7
Reading: Reading 18 Corporate Restructuring
PDF File: Reading 18 Corporate Restructuring.pdf
Page: 4
Status: Unattempted
Correct Answer: A
Question
An analyst is writing a report on the impact of an announced divestment by Ziglair, Inc. The transaction calls for sale of Ziglair's foreign subsidiary. She makes the following two statements in the report: Statement 1: One approach is to use a multiple such as EV-to-EBITDA ratio or EV- to-sales ratio to value the various segments of a business and then compare the sum of the values to the conglomerate EV to determine the reasonableness of the transaction. Statement 2: Unlike sales, spinoffs do not generate sale proceeds; hence, they are easier to model. Which statement is correct?
Answer Choices:
A. Both statements are correct
B. Statement 1 only
C. Statement 2 only
Explanation
Both statements are correct.