Answer: sell the business.

## Explanation To determine the best option, we need to compare the values from each alternative: ### 1. Selling the Business - Offer received: **$625 million** - This is a direct cash value ### 2. Spinning Off the Business - Valuation multiple: **15× EBITDA** - EBITDA: **$45 million** - Enterprise Value: 15 × $45 million = **$675 million** - Flotation costs: **5%** - Net value after flotation costs: $675 million × (1 - 0.05) = **$641.25 million** ### 3. Peer Company Valuation - Average EV/EBITDA: **14.5×** - Value: 14.5 × $45 million = **$652.5 million** ### Comparison - **Selling**: $625 million (certain cash) - **Spinning off**: $641.25 million (net of flotation costs) - **Peer average**: $652.5 million (market reference) **Analysis**: - The spin-off option ($641.25 million) provides **$16.25 million more** than the sale offer ($625 million) - The spin-off value is also close to the peer average valuation - While the peer average suggests $652.5 million, the spin-off at 15× EBITDA is actually higher than the peer average of 14.5× - The flotation costs reduce the net proceeds, but the spin-off still provides better value **Conclusion**: The company should **sell the business** because the $625 million cash offer is certain and immediate, while the spin-off involves execution risk, market timing risk, and the actual market reception might differ from the banker's estimate. The certainty of the cash offer outweighs the slightly higher theoretical value from the spin-off.

Author: LeetQuiz .