A finished FIN-660 Topic 5 divestiture choice dq post example, testing each sale's multiple against the firm's 5.0 times leverage, allowing for fire-sale discounts and selling the unit outside buyers value. Searches like "fin 660 topic 5 assignment example", "fin660 topic 5 sample" and "fin-660 topic 5 example" land here.
What a finished FIN-660 Topic 5 divestiture choice dq post looks like
The post opens with its rule: a sale reduces leverage only if it fetches a higher multiple of EBITDA than the firm's own debt multiple. Its illustrative firm carries 1,000 million of net debt against 200 of EBITDA, 5.0 times, and must repay a 250 note in nine months. The core packaging division, 130 of EBITDA, would fetch about 7.0 times now, since its natural buyers are rivals caught in the same downturn. A coatings unit earning 30 attracts chemical buyers the downturn has not touched and would fetch about 8.5 times, or 255, close to its normal value. Selling it leaves 745 against 170, about 4.38 times. The legacy printing unit, 40 of EBITDA, would bring only about 140 at 3.5 times, missing the target and raising leverage to about 5.38.
How a FIN-660 Topic 5 example is structured
Rule, table, market and cost take a paragraph each, with a reply below. The first states the rule and the recommendation, sell the coatings unit. The second applies the rule to all three divisions in a table: EBITDA, the multiple each would fetch within nine months, proceeds and leverage afterward. The third explains why the core division's price is depressed, citing Andrei Shleifer and Robert Vishny's argument that assets sold under pressure fetch less when the best-placed buyers are in the same industry and short of cash. The fourth concedes the cost: the coatings unit is a good business, and the firm gives up 30 of EBITDA it would rather keep. Nothing in the table is a real company's number, and the post says so. The reply takes up a classmate's case for selling the printing unit because it matters least, and shows the arithmetic moving the wrong way.
A rule stated before any division
Selling a unit lowers leverage only when its price, as a multiple of EBITDA, exceeds the firm's own net debt multiple, here 5.0 times.
Three divisions run through the rule
Coatings at 8.5 times cuts leverage to about 4.38, core packaging at 7.0 would gut the firm, and printing at 3.5 raises leverage.
Buyers caught in the same downturn
Rivals who would pay most for the core division are short of cash themselves, so its price now sits about an eighth below normal.
The cost of selling a good unit
Coatings is sound and growing, and the post admits the firm loses 30 of EBITDA it would keep if the note could be refinanced.
A reply that follows the arithmetic
Selling printing raises 140 against a 250 need and pushes leverage to about 5.38 times, because the sale multiple sits below the firm's own.
Where marks go in FIN-660 Topic 5
Posts that name the least important division and stop draw the heaviest penalty here, since a unit nobody wants raises little cash and, sold below the firm's own multiple, leaves the balance sheet worse. Answers that rank divisions by strategic fit alone never check whether the sale meets the nine-month need. Assuming every division sells at its normal multiple ignores who the buyers would be and what the downturn has done to them. Papers that recommend selling the core division because it raises the most cash solve the maturity by dismantling the firm. Naming the fire-sale literature without asking which buyers each unit would attract leaves the citation idle. A reply that endorses the classmate's pick unexamined leaves the thread holding a proposal that fails its own test.
Get a FIN-660 Topic 5 example written to your instructions
Send the FIN-660 Topic 5 discussion prompt and your classroom rubric, plus any readings your section assigns. We write a custom example to that prompt, with a divestiture rule stated, each division's sale priced against the firm's leverage, buyers and discounts reasoned through and a reply that runs a classmate's proposal through the numbers, in 24 to 48 hours. The first one is free.
FIN-660 Topic 5 questions, answered
Why can selling a unit make leverage worse?
Because the sale removes the unit's EBITDA as well as some debt. If the price, as a multiple of that EBITDA, is below the firm's net debt multiple, the debt falls proportionally less than the earnings. In the example, printing sells at 3.5 times while the firm carries 5.0 times, so after the sale 860 of debt sits on 160 of EBITDA, about 5.38 times.
What did Shleifer and Vishny argue about asset sales?
That the buyers who value an asset most are usually firms in the same industry, and when an industry is in trouble those firms are often short of cash or credit themselves. Assets sold under pressure then go to less natural owners at lower prices. The argument explains why a distressed seller should look for units whose likely buyers sit outside the downturn, where prices hold up better.
Does the post tell a real company which business to sell?
No. The manufacturer, its divisions, the multiples and the nine-month deadline are illustrative, set up so the leverage rule and the buyer question can both be tested in a few lines. A real divestiture depends on audited segment results, actual buyer interest, tax consequences and advice from bankers and counsel. It is a FIN-660 discussion answer, not advice to any actual firm.